Indian auto and consumer stocks rallied on Monday, with the auto index jumping nearly 5% to a 10-month high after the government’s plans of sweeping tax cuts, including lower goods and services tax (GST) on small cars.
The government’s plan to lower GST on small cars to 18% from 28%, among other changes, as part of tax reforms unveiled by Prime Minister Narendra Modi on Friday, is expected to spur demand and boost consumer spending.
The plans are likely to be announced by Diwali, a major, five-day Hindu festival in October and India’s biggest shopping season as households traditionally splurge, leading to the country’s consumption cycle peaking around the festival.
“These are strong tailwinds for the market with potential to take it higher,” said VK Vijayakumar, chief investment strategist at Geojit Investments, calling the timing of the next major GST reforms a “big positive”.
“Sectors like autos and cement, which are presently in the 28% tax slabs, are expected to benefit,” he said.
Urban consumers have been tightening their belts in recent quarters, squeezed by high living costs and sluggish income growth. A cut in GST on small cars, the auto-market’s most price-sensitive segment, could fire up festive season demand, giving middle-class buyers a break.
Auto stocks led sectoral gains on the Nifty 50 index, and were set for their best day since June 5, 2024.
Maruti Suzuki and Hyundai Motor India jumped 8% and 9%, respectively, to a record high.
Additionally, the simpler two-rate structure - slabs of 5% and 18%, with the 12% and 28% slabs scrapped - would make a host of products cheaper, from butter and fruit juices to dry fruits, offering a lift to consumer goods firms and shoppers.
Consumption stocks such as Hindustan Unilever, Nestle India and Dabur gained between 4% and 7%, powering the FMCG index 1.8% higher.
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