India’s automakers have emerged as the primary beneficiaries of the government’s recent decision to slash consumption taxes, a move expected to lift demand and improve profit prospects, Bloomberg reports.
Since Prime Minister Narendra Modi announced the plan on August 15, BSE Ltd.’s gauge of 20 auto companies has gained roughly $33 billion in market value. The index has climbed more than 12% in that period, outperforming every other sectoral index, while the broader BSE Sensex Index remained largely flat amid concerns over a 50% export tariff to the U.S., the highest in Asia.
A panel of ministers recently finalized proposals to lower the goods and services tax (GST) on most everyday items. For the auto sector, the GST on most passenger vehicle categories was reduced to 18% from rates as high as 31%, making cars and bikes more affordable ahead of India’s crucial festival season, which drives about a quarter of annual vehicle sales.
Mahindra & Mahindra Ltd., known for its range of sports utility vehicles, tractors, and farm equipment, led the rally with shares rising more than 15% this month. Eicher Motors Ltd. and TVS Motor Co. also posted significant gains.
“Exciting times lie ahead for the auto sector,” said ICICI Securities analyst Shashank Kanodia. He noted that price-sensitive segments, such as entry-level cars, are likely to see a demand boost as automakers pass on tax savings to consumers.
The government’s move is seen as a potential catalyst for sustained growth in India’s automotive market, particularly as manufacturers leverage the lower tax rates to attract more buyers during peak sales periods.
