The GST cut has breathed fresh life into India’s auto market, though not in the way investors anticipated. While passenger vehicles and two-wheelers posted a healthy 11–12% year-on-year rise in September and commercial vehicles gained 14%, tractors emerged as the standout performer with volumes jumping nearly 50% year-on-year, powered by tax relief, a favourable monsoon, and early festive stocking, well above market expectations.
As retail traction picked up only after the September 22 GST revision, analysts say that it hints that the demand cycle could still be in its early stages. If rural sentiment sustains through Diwali, tractors, and possibly light commercial vehicles, could well drive the next phase of India’s auto upturn.
Mahindra & Mahindra’s domestic tractor sales stood at approximately 64,900 units, up 50% year-on-year. The company highlighted that growth was driven by GST rationalisation and preponing of the festive period compared to last year. Escorts Kubota reported domestic sales of approximately 17,800 units, up 49% year-on-year, with the company noting that the overall demand outlook remains positive, with expectations of stronger momentum sustaining through the remainder of FY26.
“Additionally, positive kharif outlook, increase in sown acreage, and above-normal monsoon are further aiding overall domestic demand,” JM Financial said.
The timing suggests more upside ahead. “As underlying trends improved only toward the end of the month, we believe October could see a major spillover effect led by Dhanteras and Diwali festivals, reflected in the high customer enquiries, per our checks,” Emkay Global said. “However, demand sustenance post-Festive remains a key monitorable.”
HSBC echoed the bullish near-term view: “Tractor demand remains buoyant due to the strong festive season. Extended monsoon and relatively weaker cashflow due to early festive season (timing mismatch of crop harvest and festival) are delaying retail momentum. Though it is strong, it is expected to improve further during and post Diwali.”
The GST cut’s impact extended beyond tractors. Vahan registration during the first nine days of Navratri grew by 27% and 42% for two-wheelers and cars due to pent-up demand and festive cheer. With April to August retails for two-wheelers and cars tracking 2% and flat year-on-year growth respectively, the industry was staring at a high base for the festive season and falling short of full-year industry forecasts. However, thanks to the GST cut, the industry has seen a strong start to the festive season, helping two-wheelers and cars grow 6% and 4% in retail for the month.
“Given the substantial cut in GST rates and the additional discounts offered by companies, especially in cars, the demand bump up during festive needs to sustain beyond festive to meet the high growth estimates being priced into the stocks, in our view,” UBS cautioned. “We remain cautious on sector valuations at current levels due to elevated expectations.”
Kotak Equities noted that the auto sector reported a mixed set of wholesale numbers, with the passenger vehicle segment’s volumes impacted by logistics issues and the two-wheeler segment marginally below expectations, whereas the tractors and LCV segments reported better-than-expected print. “Retail trends remained strong across segments after September 22, led by GST cuts and pent-up demand. Exports remained strong across the 2W, PV and CV segments. In terms of OEMs, Tata Motors, M&M, Eicher Motors and Escorts Kubota reported better-than-expected print.”
HSBC highlighted that inventory is very low for most passenger vehicle and two-wheeler models, hence wholesales should remain strong over the next two to four months. “Growth in the rural market is delayed due to the extended monsoon and early festive season; it should improve around Diwali with a good spill over during November,” the brokerage said.
On the electric vehicle front, e-2W penetration increased to an all-time high of 8.1% and e-4W was at 5.1%, mainly from slower wholesales of ICE vehicles, HSBC noted.
Stock Picks
Emkay Global said it remains positive on two-wheelers, led by improved replacement demand visibility with industry volume below the FY19 peak, potential rural recovery after a prolonged softness aided by recent GST cuts, and sustained rise in exports. “We see Eicher/TVSL outperforming, on strong product actions and disciplined pricing amid sustained growth in domestic/exports. In PVs, we like Maruti Suzuki (success of the recent ICE SUV launch in Sep-25 and recovery in small cars are key triggers); in ancillaries, we like Shriram Pistons, Craftsman Automation, and CEAT.”
Axis Securities said in the long term, it prefers TVS Motors, Hero Motocorp, and Bajaj Auto in two-wheelers, with Eicher seeming fully valued at current market price. The brokerage likes M&M as a play in the PV/LCV/tractor segment, followed by Maruti in passenger vehicles. “We also like Ashok Leyland in the CV space, followed by a close watch on Eicher (VECV) for any market share gains,” Axis Securities said.
(Disclaimer : Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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