Auto sector discounts to trend down as GST cuts set to lift demand: Motilal Oswal

The report noted that with a pick-up in demand, discounts should gradually reduce across categories, helping drive margin expansion for automakers.

It stated, "With a pick-up in demand, we also expect discounts to trend down across key segments, which should drive margin expansion going ahead. On the back of demand revival and much better earnings growth."

It added that, on the back of demand revival and a much better earnings growth outlook, the report has raised its volume growth estimates across all key segments for FY26 and FY27.

While the premiumisation trend is expected to continue, Motilal Oswal also pointed out that small car demand is likely to grow from a very low base, contributing to overall recovery.

The report has also revised its growth projections as follows: for two-wheelers, volumes are now expected to increase 4 per cent in FY26 and 7.5 per cent in FY27, compared with its earlier forecast of 1 percent and 5.7 per cent.

For passenger vehicles, the estimates have been raised to 3 per cent in FY26 and 8 per cent in FY27, against the earlier 2 per cent and 4 per cent. Commercial vehicles are projected to grow at 5 per cent in FY26 and 7 per cent in FY27, compared with 2 per cent and 4 per cent earlier.

Tractor sales growth has been revised upwards to 10 percent in FY26 and 6 percent in FY27, from the earlier 8 per cent and 5 per cent.

A key factor driving this optimism is the GST Council's decision to cut rates on the majority of auto segments to 18 per cent from 28 percent earlier, effective September 22, 2025.

For SUVs above 4 metres and other specified categories, the rate has been reduced to 40 per cent without cess from the earlier range of 43-50 per cent. For tractors and tractor components, GST has been cut sharply to 5 per cent from 12-18 per cent.

The report shared that these tax reductions, combined with supportive sectoral tailwinds such as a normal monsoon boosting rural sentiment, a nearly 100 basis point reduction in interest rates in calendar year 2025 so far, and income tax benefits, are expected to revive demand strongly from the upcoming festive season. (ANI)