Elara Ups Auto Earnings Forecasts as GST Cut and Tax Relief Boost Disposable Incomes by up to 7%

Brokerage Elara Securities has raised its earnings estimates and target prices for leading automakers, citing the combined impact of GST cuts, income tax rebates, and interest rate reductions, which are expected to lift household disposable incomes by 4–7% and spur auto demand.

For households earning about ₹1.2 million annually, the cumulative measures could translate into a 7.3% income benefit, while those in the ₹0.5–1 million bracket may gain 4–6%. Elara believes the auto sector is entering a strong demand cycle, with the Eighth Pay Commission also on the horizon.

Outlook: PVs to Lead the Delta

Passenger vehicles, which have been lagging in growth in FY26 so far, are expected to see the biggest incremental delta, with FY26E and FY27E growth revised to 5% and 10% (vs. earlier 2% and 6%).

Two-wheelers are expected to follow with 8% and 10% growth (vs. 6% and 8%). Commercial vehicles and tractors remain steady at 3–5% CAGR through FY28.

“The earnings delta is likely to be highest for PVs, followed by 2Ws,” said Jay Kale, lead analyst at Elara Securities. “With GDP per capita rising at 5–6% annually, the demand stimulus from tax, GST, and rate cuts could mark a structural turning point for India’s auto industry.”

Earnings Upgrade Linked to Higher Affordability

Improved affordability is at the core of Elara’s revisions. Post-GST cut, passenger vehicle prices are expected to fall by ~8%, restoring the affordability index to pre-COVID levels.

This, along with rising disposable incomes, should drive a revival in first-time buyers and an upgrade push towards mid- and top-end trims. “The shift towards premiumisation could lift average selling prices (ASPs) and margins, especially benefiting Mahindra & Mahindra and Eicher Motors,” Elara noted.

As a result, the brokerage has increased FY26E–27E EPS estimates for OEMs by 4–13%. Maruti Suzuki (MSIL), TVS Motor (TVSL), and Mahindra & Mahindra (MM) emerge as the top beneficiaries. Target prices have been revised upwards across the board:

• MSIL: ₹17,673 (↑24%)

• TVSL: ₹4,104 (↑21%)

• MM: ₹4,216 (↑9%)

• Tata Motors (TTMT): ₹769 (↑8%)

• Bajaj Auto (BJAUT): ₹10,345 (↑5%)

• Eicher Motors (EIM): ₹6,250 (↑25%)

• Hero MotoCorp (HMCL): ₹5,830 (↑21%)

• Ashok Leyland (AL): ₹131 (↑9%)

Bajaj Auto’s rating has been revised to “Accumulate” from “Buy,” after a sharp rally, while MSIL, TVS, and M&M remain Elara’s top picks.

Market Already Pricing in Optimism

Since the GST cut announcement in mid-August, auto stocks have rallied sharply, reflecting improved earnings prospects and P/E re-ratings. MSIL and EIM are up 18%, TVSL has gained 15%, and HMCL has gained 12%.