Hopes of GST rate cut lifts auto stocks; TVS Motors up 4%, Bajaj Auto gains close to 3%

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Updated: August 27, 2020 4:13 PM

In an otherwise volatile share market, that is witnessing the benchmark indices dance between gains and losses, it is the auto stocks that are having one of their best trading sessions in recent weeks.

The manufacturers of scooters and bikes have been demanding a rate cut for the section, and with the comments giving hope two-wheeler manufacturers surged on the bourses.

In an otherwise volatile share market, that is witnessing the benchmark indices dance between gains and losses, it is the auto stocks that are having one of their best trading sessions in recent weeks. Bajaj Auto was one of the top gaining stocks on S&P BSE Sensex, along with Mahindra & Mahindra. On the BSE Midcap index TVS Motors was up over 4%. All this on the back of the Finance Minister’s comments that gave hope of a cut in GST rates for the two-wheeler segment. At a CII event on Tuesday, Nirmala Sitharaman agreed that two-wheelers are neither luxury goods nor sin goods, hence meriting a rate revision.

The Goods and Services Tax (GST) Council is set to meet for its 41st session tomorrow. The manufacturers of scooters and bikes have been demanding a rate cut for the section, and with the comments giving hope two-wheeler manufacturers surged on the bourses. Hero Motocorp shares were up 4.64% and Eicher Motors was up 1.5% on the BSE. Rural players like TVS Motors and Hero Motocorp are some of the major beneficiaries here, and Bajaj Auto could also be a big beneficiary,” Saji John, Auto Analyst, Geojit Financial Services told Financial Express. “However, it remains to be seen how quick the government does this (rate cut) because if it takes long there could be postponement in sales on the expectation of a cut,” he added.

However, a GST rate cut for only manufacturers could be and not the entire supply chain could be a problem. “. Lowering of rate on final product without corresponding reduction in inputs would lead to inverted duty structure and not incentivise OEMs to pass on the benefit to consumers,” said analysts at ICICI Direct Research. Cutting GST rates for the entire supply chain would also prove beneficial for OEMs like Gabriel, Minda Industries and Munjal Showa

The 28% GST bracket has specifically been created for luxury and sin goods, and in all likelihood the Government may take up the two-wheeler GST rate issue soon, said Jyoti Roy, DVP- Equity Strategy, Angel Broking. The brokerage firm maintains its positive stance on the two wheeler sector with Hero Motocorp as its top bet. Meanwhile, Saji John of Geojit warns that valuations are high for the sector but is still betting on Bajaj Auto and Hero Motocorp.

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