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Demand picks up for most segments after GST rate cuts

Sep’25 auto sales are expected to see interesting trends. For both PVs and 2Ws, demand remained weak for almost three weeks as customers postponed their purchases to take advantage of GST rate cuts, effective 22nd Sep, and also due to the Shradh period ahead of the Navratri festival. Further, given the cess impact especially in PVs, most OEMs deferred their dispatches. While production continued for most of Sep, dispatches to dealerships resumed only from 22nd Sep. Thus, although retail demand has picked up well across segments, led by the GST rate cut and pent-up demand, Sep dispatches would be largely a function of how OEMs manage their logistics in the last eight days of the month. Further, discounts in PVs have increased even after GST cuts, though discounts in 2Ws have reduced on YoY basis. Overall, we expect 2Ws/PVs/CVs/tractors to post 13%/6%/3%/11% growth in wholesale in Sep’25. We expect auto demand to recover from hereon, led by GST rate cuts and favorable rural sentiment. Our top OEM picks are MSIL and MM.

* PVs: Retail demand was weak for the first three weeks of Sep due to the Shradh period and as customers delayed purchases to benefit from revised GST rates. Hence, the Navratri festival this time has been strong for all OEMs, boosted by strong pent-up demand and the GST rate cut. Players like Maruti Suzuki have cut prices of entry-level vehicles even below GST rates in a bid to revive demand in the segment. At an overall level, the PV segment is seeing higher discounts for a limited period (till 30th Sep) as OEMs look to revive customer interest in the segment. While demand has picked up well in Navartri, OEM-wise wholesales are likely to be limited only by the number of vehicles they can ship to dealers in these eight days after Navratri. For Sep, we expect the PV segment to post 6% YoY growth in dispatches.

* 2Ws: Unlike in PVs, retail demand for 2Ws had already picked up in Jul-Aug relative to 1Q and the momentum has again picked up in this festive period after the seasonally weak Shradh period. As per dealers, customer walk-ins have improved significantly in Navratri and retails have also picked up well, albeit driven by pent-up demand. However, unlike in PVs, discounts have come down for most OEMs in the festive period, especially in the entry segment. For Sep, we expect the 2W segment to post 11% YoY growth in dispatches.

* CVs: For the CV segment, the impact of GST rate cuts would be different across sub-segments. Quite a few customers avail input tax credit (ITC) on GST; hence, for such customers, the GST rate cut will not be a material benefit. For instance, in HCVs, about 60-70% of customers are B2B operators who claim ITC. In the case of ILCVs, around 40% of customers claim ITC. On the other hand, only 18% in SCVs claim ITC. Thus, the benefit of GST rate cuts is the highest for lowtonnage segments. The CV segment has seen a healthy revival over July-Aug. For Sep, we expect the CV segment to post steady 3% YoY growth in dispatches.

* Tractors: This segment has been seeing extremely good momentum from the beginning of FY26. Normal monsoon, healthy crop patterns, and improved MSPs, among others, have boosted rural sentiment. Further, the government has lowered the GST rate to 5% for this segment, not only on tractors but also on components. Thus, we expect the demand momentum to remain stable in this segment going forward. We expect the tractor segment to post 11% volume growth in Sep.

* Valuation and view: The GST Council has provided a much-needed booster shot to the auto sector by reducing the tax rates on the majority of auto segments. These timely rate cuts, coupled with other sectoral tailwinds like normal monsoon boosting rural sentiment, a ~100bp reduction in interest rates in CY25 so far, and income tax benefits, are expected to revive demand for the auto sector from this festive season. Further, while we expect the premiumization trend to continue, we also expect small car demand to grow over a low base. We have now raised our FY26/FY27 volume growth estimates for 2Ws to 4%/7.5% (vs. 1%/5.7% earlier), PVs to 3%/8% (vs. 2%/4% earlier), CVs to 5%/7% (vs. 2%/4% earlier) and tractors to 10%/6% (vs. 8%/5% earlier). Our top picks in auto OEMs are Maruti Suzuki (new launches + exports rampup to drive 16% earnings growth) and M&M (new launches + positive rural sentiments to drive 20% earnings growth). We also like Hyundai, HMCL and AL. We maintain our Sell rating on EIM. We have a Neutral rating on TTMT, BJAUT and TVSL.

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