The market response to GST reforms may have been weak, but according to Emkay Global, it was already priced in, and while growth recovery is not yet visible, some silver linings have emerged. The domestic broking major further believes that auto stocks are the best way to play the GST reforms and maintains its earlier September 2026 target of 28,000 for the Nifty.
"Our monthly review of macro data suggests that growth recovery is not yet visible, though some silver linings have emerged... Though the market response was weak, much of this was priced in in the 2 percent Nifty rally since the Prime Minister’s GST announcement on 15-Aug-25. We remain positive on the markets and uphold our Sep-26 Nifty target of 28,000, while we believe autos are the best way to play the GST reform," stated the broking firm in its latest India strategy report.
Currently, the Nifty is at 24,741.
We remain confident, however, about an improved H2FY26, especially after the GST reform announced on 3-Sep-25, added the report.
Following the GST restructuring, the internal combustion engine (ICE) cars and two-wheelers are now under two slabs, 18% and 40%, while three-wheelers and commercial vehicles (CVs) are in the 18 percent slab.
Before the rejig, ICE cars attracted 28 percent GST and compensation cess from 1 percent to 22 percent, depending on the length, body style and engine capacity of the vehicle, resulting in the total tax of 29 percent to 50 percent. For ICE two-wheelers, while the GST was the same at 28 percent, the compensation cess was from nil to 3 percent depending on the engine capacity, with the total tax being 28 percent to 31 percent. On ICE three-wheelers and CVs, there was a flat 28 percent GST with no compensation cess
There has been no change in GST on electric vehicles (EVs).
"Autos remain the big beneficiaries, with some positive surprises on EVs. Moreover, there was significant procedural reform with faster refunds and easier registration, which should help SMEs. We remain constructive on India’s growth outlook, and expect a cyclical recovery in consumption. The cascading effect of multiple stimuli: increased welfare spending, monetary easing, and the GST cut should have an impact in H2FY26," stated the Emkay report.
On bonds and currency, the broking firm believes that the medium-term outlook remains weak, given a potential revenue shortfall. "The key risks are weak nominal GDP (tracking 200-250bps below budget estimates) and an overshoot of the GST hit. The rupee remains weak and has slipped 3.3 percent YTD (FY26), with tariff concerns and sustained FPI selling the key driver," stated the report.
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