The automotive industry is poised for a potential boost as the GST Council has decided to cut the GST rate on small cars and bikes under 350cc to 18%. This move, effective from September 22, 2025, is expected to make entry-level vehicles more affordable and boost demand, particularly with the festive season approaching.

Impact on Auto Stocks

The GST reduction is anticipated to positively impact auto stocks, especially those with a strong presence in the small car and two-wheeler segments. Key players like Tata Motors, Hero MotoCorp, TVS Motor Company, and Hyundai are expected to be in focus as the new rates come into effect.

Tata Motors: Tata Motors has been actively launching new models and variants, including CNG-powered vehicles and electric versions of its popular Nexon SUV. The company recorded a 44% growth in EV sales in August 2025 compared to the previous year, selling over 8,000 units. The GST cut could further incentivize sales of its small cars like the Tiago and Tigor.

Hero MotoCorp: As the world's largest two-wheeler manufacturer, Hero MotoCorp is likely to see a boost in demand for its commuter bikes with engine capacity less than 350cc. The company's sales data for July 2025 showed a 21% increase in dispatches, and the GST reduction could further fuel this growth.

TVS Motor Company: TVS Motor has demonstrated strong sales performance, with a 30% year-on-year increase in total sales in August 2025. The company's motorcycle and scooter sales have also seen significant growth. With the GST rate cut for bikes under 350cc, TVS is well-positioned to capitalize on increased affordability and demand.

Hyundai: Hyundai Motor India has been focusing on exports and has reported a 21% year-on-year growth in exports for August. The company has also been refreshing its product line-up, with the Creta remaining a popular model. The GST reduction for small cars is expected to make models like the Grand i10 NIOS and i20 more attractive to budget-conscious buyers.

Winners and Losers

While the GST cut is largely seen as positive for the auto industry, there are nuances to consider. According to Gaurav Vangaal, associate director at S&P Global Mobility, brands like Maruti, Tata and Mahindra are likely to benefit the most, especially with popular small crossovers like Fronx and Punch gaining traction.

The move to reduce GST on smaller vehicles may not benefit all manufacturers equally. For instance, Royal Enfield, known for its motorcycles with engine sizes above 350cc, may face a disadvantage as these bikes will be taxed at a higher rate.

Other Considerations

The GST Council has also introduced a 40% slab for "sin goods" and luxury items, which includes larger bikes and cars costing above ₹50 lakh. However, larger cars, including SUVs, may also become slightly cheaper as they will be taxed at a special rate of 40%, compared to the previous 43-50% including cess.

Furthermore, the GST rate for auto parts has been set at a uniform 18%, which is expected to bring down prices across the value chain. Buses, trucks, and ambulances will also benefit from a reduced GST rate of 18%.

Overall, the GST rate cut on small cars and bikes under 350cc is a welcome move for the auto industry, especially as it coincides with the festive season. It is expected to boost demand, increase affordability, and improve investor sentiment. Auto stocks are likely to remain in focus as the new rates come into effect on September 22, 2025.