Nifty Auto index falls for 3rd day amid US tariffs, M&M, Ashok Leyland lead losses

The fall in auto shares at a time when likely Goods and Services Tax (GST) rationalisation is expected to augur well for them but more clarity is sought.

"The government’s proposal to rationalise GST rates comes as a much-needed booster dose for the sector given that the bulk of the auto sector falls under the 28% slab, which is proposed to be reduced to 18%. This is expected to reduce vehicle prices by 7%, hence leading to a demand revival," said Motilal Oswal Financial Services Ltd recently.

"Inventories seem to be a major issue, given dealers have purchased at a higher rate and have higher than average inventories (more than 30 days) with them right now and consumers may also want to postpone their purchase. We will need to see if dealers will pass on the prices and whether some kind of refund to dealers will be provided by government when they sell the product which was bought at a higher rate. Nonetheless, 2QFY25 and parts of 3Q may see slowdown in demand for these product categories as more clarity on GST would be required," said Ambit Capital.

Global brokerage house Jefferies expects a possible cut in the to act as a significant trigger for the automobile sector, particularly benefiting demand for two-wheelers and small passenger vehicles. The brokerage believes that a lower tax incidence would lift affordability in price-sensitive segments, giving automakers the much-needed boost after a patchy demand environment in recent quarters.