Auto stocks: Despite the Indian stock market's decline from US tariffs, the auto sector shone, with the Nifty Auto index gaining 7% in August. Analysts predict that the upcoming GST rationalisation will enhance auto demand, particularly benefiting two-wheelers and small cars.
As the Indian stock market extended its sharp losses to the second straight day on Thursday, August 28, the Nifty 50 and Sensex fell over 0.80% each to the day's low, as investor sentiment was hit by the US decision to impose an additional 25% tariff on Indian imports. This comes on top of the 25% duties announced earlier this month.
The additional 25% tariff, which came into effect on August 27, is seen as a penalty on India for its continued purchase of Russian oil, with Donald Trump accusing the country of financing Russia's war in Ukraine.
Amid the ongoing tariff turmoil, which has been weighing heavily on investor sentiment, auto stocks appear to be emerging as a bright spot. The sector's limited dependence on exports is shielding it from the direct impact of higher US duties, while several domestic tailwinds are providing support.
The recently announced income tax cuts, a cumulative 100-basis-point reduction in the repo rate, a healthy monsoon, the upcoming festive season, and the proposed rationalisation of GST rates to two slabs from the current four have together strengthened the outlook for the auto sector.
Analysts believe these factors could revive auto demand, which has remained subdued in recent quarters, making auto stocks strong performers in August.
Nifty Auto races ahead with 7% gain in August
The Nifty Auto index has gained 7% so far this month, significantly outperforming the Nifty 50, which has dropped 0.61% during the same period. The index also climbed to an 11-month high of 25,589 in today's session, with Eicher Motors, Maruti Suzuki India, and TVS Motor Company hitting fresh 52-week highs.
Other stocks such as Ashok Leyland, Mahindra & Mahindra, and Bosch have also touched new 1-year peaks in August.
The recent rally has also helped some of the previous underperformers recover sharply from their lows. Hero MotoCorp has surged 54.27% from its April 7 low, while Bosch shares have rebounded 53% from the same period.
Meanwhile, TVS Motor Company has recovered 50.71%, MRF 39%, Mahindra & Mahindra 36.18%, Ashok Leyland 36%, Samvardhana Motherson 30%, and Tata Motors 25.65% from their 2025 lows. Other stocks such as Maruti Suzuki India and Eicher Motors have also strengthened, rising 37.52% and 38% respectively from their September 2024 lows.
Jefferies expects possible GST rate cuts could benefit 2Ws and small cars
Global brokerage firm Jefferies, in its latest report, noted that a possible GST cut should provide a boost to auto demand, particularly in two-wheelers (2Ws) and small passenger vehicles (PVs). "The GST rate rationalisation appears to be on track for the festive season, given the enthusiastic response from state governments, and we see no significant legal or parliamentary hurdles that could impede a smooth rollout," the brokerage said.
It highlighted that the proposed rationalization, slashing GST from 28% to 18% and from 12% to 5% in select categories, is likely to be funded by restructuring the GST cess. According to Jefferies, the biggest beneficiaries will be two-wheelers and small cars.
The brokerage estimates that FY26–28E industry volumes for 2Ws and PVs could rise by 2–6%, driving 2–8% EPS upgrades for companies such as TVS Motor, Hero MotoCorp, Maruti Suzuki, and Hyundai Motor.
Among these, Jefferies expects TVS Motor and Mahindra & Mahindra to deliver the highest earnings growth, with FY25–28E EPS CAGRs of 27% and 19%, respectively.
Auto stocks see rise in target prices
On stock ratings, Jefferies upgraded Hero MotoCorp to 'Hold' from 'Underperform', while raising its target price to ₹5,200 from ₹3,800. TVS Motor remains a 'Buy', with the target price revised to ₹4,250 from ₹3,500.
Maruti Suzuki also stays at 'Buy', with the target price raised to ₹17,500 from ₹14,750. Hyundai Motor India continues to be rated 'Underperform', though the target price has been revised upward to ₹2,000 from ₹1,700.
Bajaj Auto is maintained at 'Hold' with the target price lifted to ₹9,000 from ₹8,000, while Eicher Motors remains a 'Buy' with a higher target price of ₹6,925 versus ₹6,500 earlier.
Mahindra & Mahindra retains its 'Buy' call, with Jefferies raising the target price to ₹4,200 from ₹4,000. Tata Motors continues to be rated 'Underperform', with a slightly higher target price of ₹575, up from ₹550, while Ashok Leyland is maintained at 'Hold' with a target price of ₹120.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.