UBS analyst says auto demand may cool after festive surge as GST impact fades

After a strong run through the festive season, the Indian auto sector could see demand moderating in the coming months as the impact of the GST cut settles, according to Pramod Kumar, India Autos Analyst at UBS.Speaking to CNBC-TV18 from the side-lines of UBS India Summit 2025, Kumar noted that the September quarter was better than expected as companies navigated GST-related uncertainty effectively.
He pointed out that prior to the GST cut in mid-August, industry growth was sluggish — with two-wheelers growing only 2% and passenger cars showing marginal contraction between April and July. The rate reduction provided timely support, helping boost two-wheeler sales by around 25% and car sales by 6% between August and October.
However, Kumar cautioned that this momentum might not sustain. With the festive season behind and consumers aware that the GST reduction is permanent, sales could normalise over the next few months.  “The real test starts from December for two-wheelers and from January for cars,” he said, adding that current forecasts from leading manufacturers already reflect this expectation — with most guiding for 5–8% growth in the second half of FY26, down from the recent surge.Read Here | Bajaj Auto sees festive boost and premium demand driving 6-8% industry growth

On the entry-level segment, Kumar said the GST cut may help affordability but doesn’t guarantee a lasting revival. The category faces dual challenges of affordability and desirability.

While lower taxes may bring some first-time buyers back, he believes many consumers could instead opt for better-equipped models. “We expect customers to trade up rather than settle for basic options,” he said, noting that cars and two-wheelers remain long-term ownership commitments for most families.

From a market perspective, Kumar says that the auto sector has already delivered strong returns over the past three years, outperforming most other sectors. As a result, stock valuations are now above their historical averages — roughly one to one-and-a-half standard deviations higher. In simpler terms, a lot of the optimism is already priced into the stocks.

The recent GST cut had a “lift-all-boats” effect — it boosted sentiment and helped almost every auto stock rise. But Kumar believes that phase is now behind us. Going forward, performance will depend on company-specific factors rather than sector-wide momentum.

He indicates UBS’s preference for companies focused on premiumisation, and electrification (EVs).

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