HSBC notes that with the GST Council’s rate rationalisation (announced on 15 August and formalised by early September), certain auto segments will benefit from lower effective tax burdens. Smaller cars, in particular, may see GST rates fall from ~28% to ~18%, while larger cars might be taxed under a “special” high rate (around 40%) without the extra cess additions. These changes, which include scrapping of some cesses, are expected to take effect from 22 September. Common goods and inputs used by automakers will also get cheaper under the new structure.

• GST-led price reductions are expected to lift demand across auto segments. HSBC estimates that compound annual growth rates for many auto categories could improve by 200 to 300 basis points over the next four to five years.
• Share prices have already responded: since the tax revisions on 15 August, major auto stocks have gained approximately 6-17% as the market begins to anticipate stronger earnings.
• Given front-loaded impact (i.e. tax cuts taking effect soon), HSBC has raised its earnings per share (EPS) estimates for FY 2027 and FY 2028 by around 4-14% across companies in the auto sector.

Based on their exposure, product portfolios, and ability to pass on cost benefits, HSBC now prefers the following stocks with revised target prices:

• Maruti Suzuki: Rated BUY; target price revised to ₹17,000.
• Hyundai: Rated BUY; target price now ₹2,800.
• TVS Motor: Rated BUY; target price lifted to ₹4,000.
• M&M (Mahindra & Mahindra): Rated BUY; target price raised to ₹4,000.
• Ather Energy: Rated BUY; target price increased to ₹600.

• Policy implementation risk: Actual roll-out of GST cuts, removal of cess, and clarity on special rates are subject to decision by the GST Council and state governments. Delays or modifications could dilute expected benefits.
• Revenue impact on government: Lower taxes often mean lower collections in the short term; how the government compensates or offsets these losses (via other taxes or efficiency) will be important.
• Electric vehicle (EV) segment risk: Reduced taxes on internal combustion engine (ICE) vehicles could narrow the price advantage EVs currently enjoy, potentially slowing EV adoption unless incentives or subsidies remain strong.
• Consumer behaviour: Some buyers may continue to delay purchases until tax changes are confirmed, which can cause demand to be lumpy.

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Maruti Suzuki is likely to benefit the most, due to its large volume of small cars. Price cuts in that segment directly boost its sales and margins, especially if input cost benefits are passed to customers without squeezing margin too much.

Hyundai has a balanced portfolio — its strong value offerings and mid-segment reach mean that lowering GST on smaller models helps it significantly, while higher models might face less price change but still benefit from reduced tax incidence.

TVS Motor with exposure in two-wheelers and three-wheelers, stands to gain from both GST rate cuts and simplified tax compliance. Cheaper vehicles, lower input duty, and stronger demand tailwinds look favourable.

M&M is positioned to benefit for its SUV and utility vehicle lines, though its EV business might feel competitive pressure from ICE vehicles if tax benefits get closer across both.

Ather Energy benefits from reduced GST burdens in the broader consumer vehicle space, though its growth still depends heavily on charging infra, battery costs, and EV policy support.

For equity investors, the auto sector looks set for an inflection point. Companies that are well-geared, with strong small car / two-wheeler portfolios, may benefit most from demand pulled forward. Stocks like Maruti, TVS and Hyundai are likely to lead gains. Be mindful of policy execution, revenue trade-offs, and how EV makers respond to a narrower gap with ICE vehicles. Consider reworking valuations based on higher projected EPS for FY 27/28.

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Tags: GST reforms, auto sector, stock upgrades, Maruti Suzuki, Hyundai, TVS Motor, M&M, Ather, investor outlook, Indian-Share-Tips