New Delhi, Sep 15 The recent GST overhaul, which reduces vehicle prices by 3-9 per cent across categories, is likely to accelerate the automobile sector's growth rate to 4-14 per cent compounded annual growth rate (CAGR) till FY28, a report said on Monday.
The lower prices would lead to better affordability, increases in first-time buyer numbers and higher replacement demand.
"This leads us to an increase in our 4-5-year CAGR across segments by 200-300 basis points. This increase in growth is likely front-end loaded, hence our FY27/28 EPS estimate increases are in the range of 4-14 per cent," HSBC Global Investment Research said.
Passenger Vehicles (PVs) are likely to see price reductions of Rs 40,00 to 1.5 lakh, with the highest cost reductions expected in the Rs 10 lakh to 15 lakh segment.
The top beneficiary will be compact UVs, followed by large diesel SUVs, then entry-level cars. Tata's PV portfolio is set to see the highest price reductions across its portfolio, followed by Maruti, Hyundai, and Mahindra and Mahindra.
Price cut, festive season, and buoyant rural demand will most likely fuel growth in 2-wheeler sales.
"We expect all segments to grow simultaneously due to lower prices on 2W vehicles. While the GST cut may push premiumisation from economy to executive vehicles, it will also attract first-time buyers as the on-road price of entry-level motorcycles will fall from Rs 70,000 to Rs 63,000," the report highlighted.
However, electric two-wheelers might stagnate in the near term due to dilution of the value proposition.
The commercial vehicle (CV) demand will uptick following the GST cut and improvement in macro growth. As per the HSBC economists, the GST cut would accelerate the FY26 GDP growth rate by 20 basis points.
"We assume this will translate to equivalent CV demand, further assisted by GST-led price drops. Although a large share of CV buyers buy on credit (hence the net benefit from lower CV prices may be relatively lower compared to PVs or 2Ws), we estimate the MHCV FY25-FY28 growth CAGR will increase by 150 basis points," the report said.
As demand has accelerated due to the GST reduction, the Indian automobile firms' share prices jumped over 6-17 per cent as compared to the Nifty 50 (up 2 per cent) since 15 August.
Current valuations are punchy and 15 per cent higher than the 10-year average; therefore, we see the stocks tracking EPS growth for the next year, according to the report.
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