GST cut impact: Escorts, M&M, Eicher lead auto stock rally, gain up to 14%; top picks

Auto stocks such as Escorts Kubota Ltd, Mahindra & Mahindra (M&M) and Eicher Motors climbed up to 14 per cent in Thursday's trade as the upcoming GST cuts would lower tax rates on a majority of product offerings for car, two-wheeler, three-wheeler and tractor makers. Stock analysts said the GST rate cut will lead to a correction in car prices and is expected to provide a much-needed fillip to the car segment, which has been seeing muted traction over the past few years.

Perhaps the most impactful, when seen with a rural lens, are tractors and agri-machinery that have witnessed a GST cut to 5 per cent from 12 per cent, said Emkay Global. Such sharp reduction directly lowers acquisition costs for farmers and boosts affordability, it said.

"In our auto universe, Escorts and M&M would be major beneficiaries as M&M’s market share continues to scale new highs, while ESC is focusing strongly on addressing the white spaces in its portfolio via targeted strategic product launches," the brokerage said.

Shares of Escorts climbed 13.53 per cent to hit a high of Rs 4,171.35. M&M shares were up 6.44 per cent at Rs 3,496. Eicher Motors jumped 2.58 per cent to Rs 6,528.25. Tata Motors, Hyundai Motor, TVS Motor and Hero MotoCorp added 1-2 per cent. Bajaj Auto and Maruti Suzuki added less than 1 per cent each. The BSE Auto index stood at 59,007.47, up 1,276.61 points or 2.21 per cent.

"In our assessment, in the PV segment, Maruti and Hero Moto stand to emerge as the biggest beneficiaries of this rate cut as they have a sizeable portion of their mix coming from the sub 4mtr segment," MOFSL said.

"Further, given that there was still an uncertainty around whether or not the final tax incidence on UVs would be lower or not, M&M stands to gain after the clarification regarding the cessation of compensation cess. M&M also benefits from the fact that GST rates on both tractors and tractor parts have been reduced to 5 per cent from 12 per cent/18 per cent earlier," MOFSL said.

For MOFSL, Maruti Suzuki India and M&M are top picks. It likes Endurance, SAMIL and Happy Forgings among auto ancillary stocks.