The Indian auto sector witnessed a significant boost in September, with the NSE Nifty Auto index recording its strongest September performance since 2019. The index gained an impressive 5.9%, driven by government GST rate cuts and anticipation of festive season demand.

Key Highlights

• The NSE Nifty Auto index rose 5.9% in September, its best performance for the month since 2019's 6.9% advance.
• Government reduced GST rates on vehicles, particularly benefiting small cars and large cars/SUVs.
• Samvardhana Motherson International led the rally with a 15% gain.
• Only three stocks in the index declined during the month.

GST Rate Cuts Fuel Rally

The rally was primarily fueled by the government's decision to slash GST rates on vehicles. The tax cuts included:

• Reduction of GST on small cars from 28% to 18%
• Lowering of effective tax on large cars and SUVs to 40% by removing additional levies

These tax cuts are expected to make vehicles more affordable and boost consumer demand.

Top Performers

Several auto stocks saw significant gains in September:

Underperformers

While most stocks in the index performed well, three companies saw declines:

Valuation and Growth Prospects

The auto index is currently trading at a price-to-earnings (P/E) ratio of 27.58, compared to the Nifty 50's P/E of 21.86. This higher valuation suggests investors' optimism about the sector's growth prospects.

Bank of America has projected an 8% compound annual growth rate in passenger vehicle and two-wheeler volumes between FY25 and FY28, indicating a positive long-term outlook for the industry.

Factors Supporting Growth

Several factors are expected to contribute to the sector's growth:

1. Tax relief measures
2. Stable fuel prices
3. Easier credit availability
4. Improving household finances

Industry Response

Automakers are capitalizing on these favorable conditions by:

1. Anticipating demand revival through lower prices
2. Offering festive season discounts to attract customers

The combination of government support, improving economic conditions, and strategic pricing by automakers is expected to drive growth in the Indian auto sector in the coming months.

The Indian auto sector witnessed a significant boost as shares of major automakers rallied up to 5% following robust demand on the first day of Navratri, coinciding with the rollout of GST 2.0. The Nifty Auto index reflected this positive sentiment, gaining 2% by 9:30 am.

Market Performance

Shares of key players in the auto industry, including Maruti Suzuki, Hyundai Motor India, Mahindra & Mahindra, Eicher Motors, Tata Motors, and Hero MotoCorp, experienced substantial gains. This surge came on the back of strong sales figures and increased consumer interest, partly attributed to the implementation of the new GST regime.

Maruti Suzuki's Record-Breaking Performance

Maruti Suzuki, India's largest carmaker, reported exceptional numbers on the first day of Navratri:

• 80,000 inquiries received
• 30,000 vehicle deliveries made
• Best Navratri start in 35 years

The company has seen a significant uptick in bookings since announcing price cuts:

• 75,000 bookings received
• Average of 15,000 daily orders, 50% higher than usual
• 50% increase in small car demand

Some models are potentially facing stock shortages due to the surge in demand.

Hyundai Motor's Strong Showing

Hyundai Motor India also reported impressive figures:

• 11,000 dealer billings on Day 1
• Highest single-day performance in five years

Financial analysts have taken note of Hyundai's performance, with Nomura maintaining a Buy rating on the company and setting a target price of Rs 2,846.00.

Industry-Wide Impact

The auto sector as a whole experienced positive trends:

• Large crowds at dealerships
• Surge in online sales
• Consumers responding favorably to price cuts under the new GST regime

Market Outlook

The Nifty Auto Index has shown strong performance year-to-date, with a gain of nearly 20.00%. This recent surge in demand and stock prices indicates a positive outlook for the auto sector, particularly as the festive season gets underway.

The combination of GST 2.0 implementation and the start of Navratri appears to have created a perfect storm for automakers, driving both sales and investor confidence. As the festive season progresses, it will be interesting to see if this momentum can be sustained and how it might impact the long-term performance of the auto sector.