Auto stocks vroom; Hero MotoCorp jumps nearly 9% buoyed by proposed GST reforms

New Delhi: Auto stocks were in high demand on Monday morning trade, with Hero MotoCorp jumping nearly 9 per cent, buoyed by plans for big bang reforms in the GST regime by Diwali.

Shares of Hero MotoCorp surged 8.70 per cent, Maruti Suzuki India rallied 8 per cent, Ashok Leyland jumped 7.95 per cent, Hyundai Motor India zoomed 7.68 per cent, TVS Motor Company climbed 7.12 per cent, Bajaj Auto soared 5.18 per cent, Mahindra & Mahindra went up by 4.72 per cent, Eicher Motors (4.52 per cent) and Tata Motors (2.87 per cent) on the BSE.

The BSE auto index jumped 4.48 per cent to 56,371.23.

"There are strong tailwinds for the market with potential to take it higher. Declarations by the prime minister on the next major reforms in GST by Diwali, is a big positive. The expectation is that most of the goods and services will be in the 5 per cent and 18 per cent tax slabs.

"Sectors like autos and cement which are presently in the 28 per cent tax slabs are expected to benifit. TVS Motors, Hero, Eicher, M&M and Maruti are likely to respond positively to the news," VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, Prime Minister Narendra Modi on Sunday said the Centre has circulated the draft of the next-generation GST reforms among states and sought their cooperation to implement the proposal before Diwali.

Modi had announced the proposal to reform the GST law in his Independence Day speech on August 15 from the ramparts of the Red Fort.

In upcoming sweeping reforms, the GST on automobiles - currently in the highest tax bracket - will be restructured to resolve classification disputes related to engine capacity and vehicle size, ultimately benefiting the common man, according to government sources.

Presently, automobiles are taxed at 28 per cent, which is the highest GST slab. A compensation cess, ranging from 1 to 22 per cent, is levied on top of this rate, depending on the type of vehicle.

Sources said, as per the Centre’s proposal for moving the GST system to a two-tier rate structure of 5 and 18 per cent and a 40 per cent slab for a select few items, automobiles will be placed in a slab to put an end to disputes arising due to the classification of cars by engine capacity and length.

A lower GST rate will boost demand and sales, as cars will become affordable. Thereby boosting consumption, a key idea behind the GST overhaul proposal mooted by the Centre.