New Delhi [India], September 1 (ANI): The auto industry is likely to get a significant boost as the government is expected to announce Goods and Services Tax (GST) rate cuts soon.
According to a report by Jefferies, the outlook for the two-wheeler (2W) and passenger vehicle (PV) industries has been revised upward, with volumes for FY25-28E increased.
It stated, “We raise FY26-28E 2W and PV industry volumes by 2-6 per cent. We expect 2Ws to grow at a faster 10 per cent CAGR over FY25-28E vs 8 per cent for PVs.”
The report highlighted that volumes in the 2W segment are expected to grow at a faster pace of 10 per cent CAGR over FY25-28E, compared to 8 per cent CAGR for PVs.
The faster growth projection for 2Ws comes on the back of a benign base, as FY25 volumes are still 6 per cent below the pre-Covid peak of FY19.
Jefferies noted that demand for automobiles has been subdued in the past few months. Between April and July, registrations grew just 2-3 per cent year-on-year for both 2Ws and PVs, while truck registrations actually fell 3 per cent year-on-year.
The tractor segment, however, bucked the trend, reporting a stronger 7 per cent year-on-year growth.
The report pointed out that demand is expected to pick up in the coming months due to a combination of factors, including the recent income tax cut, easing liquidity in the market, and the potential reduction in GST rates.
It maintained its earlier estimates for FY25-28E volume growth at 9 per cent for tractors and 3 per cent for trucks.
Among the segments, Jefferies believes that 2Ws and small PVs (sub-4 metre cars and SUVs), which are currently taxed at 28-31 per cent, are likely to benefit the most from the potential GST cut.
Large SUVs, presently taxed at 45-50 per cent (28 per cent GST plus cess), could also see their rates drop to around 40 per cent.
The report added that tractors could see their GST rate reduced from 12 per cent to 5 per cent, although this may create an inverted duty structure, as most metals and components attract an 18 per cent GST.
Commercial vehicles, too, could benefit, with a possible reduction from 28 per cent to 18 per cent.
However, Jefferies underlined that freight demand is expected to play a larger role in driving truck purchases than lower vehicle prices.
According to the report, a 7-10 per cent GST rate cut could result in a 6-8 per cent reduction in on-road prices for most vehicles, providing relief to consumers and potentially lifting demand across segments. (ANI)
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