The brokerage firm, Motilal Oswal is bullish on key vehicle Finance stocks on hopes of a potential cut in GST rates on vehicles. Improving rural dynamics could open up fresh growth opportunities for financiers. The brokerage has Buy recommendation on three key stocks. This includes Shriram Finance, Cholamandalam Investment & Finance, and Mahindra & Mahindra Financial Services, with Shriram Finance named its ‘preferred pick.’
The brokerage further noted, “Risk-reward in vehicle financiers is now even. A GST cut, if implemented, could lower vehicle prices by 7–8% and act as a strong demand catalyst for both passenger and commercial vehicles.”
Motilal Oswal on vehicle finance companies: GST cut could be the trigger for revival
As of the current scenario, automobiles are taxed at the highest GST slab of 28%. The brokerage report further pointed out that a Group of Ministers has already recommended a reduction to 18% for most segments, and the final call now rests with the GST Council.
If approved, the move could translate into a sharp cut in vehicle prices, potentially reviving demand at a time when the industry is grappling with weak sales, the brokerage report pointed out.
Motilal Oswal further noted that the timing of the decision will also be a crucial point. If announced before Ganesh Chaturthi later this month, the festival season may see extraordinary sales. However, a delay until September could push the benefit into the third quarter, aligning with Navratri and Diwali demand.
“Reducing GST on vehicles is a long-pending industry demand. The cut, if it comes before the festival season, could bring back customers to showrooms and give financiers a fresh lending opportunity,” the report added.
Motilal Oswal on vehicle finance companies: Dealers and buyers in wait-and-watch mode
As per the brokerage report, the buzz around the tax cut has already impacted buying behaviour. Customers are postponing purchases in anticipation of lower prices, creating a lull in the market. Dealers, meanwhile, are stuck between clearing old inventory purchased at higher GST rates and waiting for new stock that would come cheaper if the cut is implemented.
This uncertainty, Motilal Oswal pointed out, could also affect manufacturers. “If there is no mechanism to refund GST already paid on old stock, auto OEMs may be forced to support dealers with discounts, which could eat into their margins,” it said.
Let’s take a look at the top picks by the brokerage in this space-
Shriram Finance: Motilal Oswal’s preferred pick
The brokerage is most bullish on Shriram Finance, assigning it a target price of Rs 780. This translates to an upside potential of 27% from the current market price. The company’s focus on financing vehicles aged five to ten years makes it less vulnerable to sharp depreciation, a key concern in the used-vehicle market.
“Shriram Finance has strong provisioning buffers that will help it navigate any near-term volatility in used vehicle prices. Its liquidity levels, which have been high, are expected to normalise, easing margin pressure,” Motilal Oswal said.
Furthermore, the brokerage added that Shriram’s diversified portfolio and strong rural presence position it as the “preferred pick” in the sector.
Cholamandalam Finance: Riding margin tailwinds
The second name on the list is Cholamandalam Finance, with a target price of Rs 1,670. This indicates a potential upside of 10% from the current market price.
The lender has a presence across new and used vehicles, ranging from commercial vehicles and passenger cars to tractors and two wheelers.
Motilal Oswal noted that margins are likely to improve in the coming quarters, providing earnings support. “Despite asset quality softness in Q1FY26, we expect recovery in the second half of the year. Chola’s ability to go overweight or underweight in certain product categories allows it to capture market opportunities more efficiently,” the report added.
Mahindra Finance: Attractive valuations
The third stock on Motilal Oswal’s radar is Mahindra & Mahindra Financial Services, with a target price of Rs 310. This shows an upside potential of 18% from the current market price.
Nearly half of its book is linked to parent M&M’s SUV portfolio, which may not benefit fully from a GST cut, as SUVs are unlikely to see the same tax relief as smaller vehicles, the brokerage report added. However, its deep rural reach remains a strength.
“A good monsoon and rising farm incomes can support demand for tractors and smaller commercial vehicles, which form an important part of Mahindra Finance’s book. While asset quality challenges remain, valuations are attractive at current levels,” the brokerage noted.