The Indian auto sector is gearing up for a strong phase as the rollout of GST 2.0 and the festive season create an optimistic outlook. The centre’s decision to cut GST to 18% from 28% for small cars and SUVs is expected to boost affordability and drive higher sales across all segments, from two-wheelers to luxury vehicles. Traditionally, this festive period is the peak season for auto sales, with festivals like Navratri, Dussehra, and Diwali fuelling demand.
But the question remains whether higher US tariffs under the Trump administration will affect the sector’s ability to surpass last year’s sales milestones and where investors should focus their attention. Let’s explore this in the article.
What’s Happening?
Foreign institutional investors have poured nearly Rs 4,500 crore into Indian auto stocks after PM Narendra Modi’s August 15 announcement on GST rationalisation. The excitement is fuelled by expectations of a consumption-led rally as new tax cuts take effect from September 22, lowering GST rates from 28% plus cess to 18%, while taxes on large SUVs were reduced to 40%. Two-wheelers up to 350cc now attract 18%, while premium bikes above that threshold face 40%.
It is not just foreign investors who are bullish. Mutual funds are also raising their exposure to the auto sector, with its weight in fund portfolios climbing to a 10-month high of 8.5% in August, up from 7.9% in June and 8% in July, making it the sharpest monthly rise among major sectors. Policy support, along with the upcoming festive season, has further strengthened the outlook for auto stocks.
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FIIs Sectoral Buying
Foreign institutional investors have shown significant interest in auto stocks in September 2025. As per NSDL data, they invested Rs 1,908 crore in the first half of September, higher than the entire inflow of Rs 1,803 crore seen in August.
In August, FIIs had initially sold stocks worth Rs 814 crore but later made fresh purchases of Rs 2,617 crore. Looking back at July, FIIs had sold around Rs 3,584 crore worth of auto stocks after buying Rs 4,724 crore in June 2025, showing a sharp swing in their positions.
The auto sector is not the only focus. FIIs also invested in metals with Rs 1,394 crore, capital goods with Rs 1,518 crore, and financials with Rs 1,634 crore. On the selling side, consumer services saw the largest outflow of Rs 3,246 crore, followed by realty, IT, services, and power, where selling crossed Rs 2,000 crore each.
Nifty Auto Index Outperformance
During the past month, Nifty Auto has been the top performer with gains of around 7.20%. In comparison, Nifty50 has barely managed to stay positive as of Monday, September 22, 2025 with 1.34%. Seasonal tailwinds are also adding strength to the sector. Historical data shows that autos have closed September in the green 16 out of the last 20 years, with average gains of 3.71%.
Since August 14, the Nifty Auto index has jumped nearly 13%. Eicher Motors has been the biggest gainer in the past month with a 17% rally. Other strong performers include Maruti Suzuki, TVS Motor, and Samvardhana Motherson.
Furthermore, the bullish trend extends beyond the short term as the auto index leads the race, having surged 15.74% over three months and delivered 23.77% returns over six months, ranking second only after the Nifty Defence index.
What Does This Mean to Investors?
The recent surge in FII and mutual fund activity, along with strong Nifty Auto performance, signals a clear opportunity for investors. Lower GST rates combined with seasonal demand are expected to boost auto sales and corporate earnings, which could further elevate share prices from current levels.
In 2024, automobile retail sales during the 42-day festive period surged 11.76% to 42.88 lakh vehicles compared with 38.37 lakh units in the same period the previous year. Among the different categories, two-wheeler sales grew 13.79%, largely driven by strong rural demand.
Historical trends show autos performing well during these festive seasons, and key stocks like Eicher Motors, Maruti Suzuki, and TVS Motor are already delivering strong returns. Investors can benefit from both short-term momentum and potential medium-term gains as the sector continues to attract foreign and domestic inflows.
What’s Next?
Overall, FIIs were net sellers of Rs 9,759 crore in the first half of September, but their strategic moves indicate careful positioning ahead of the festive season consumption cycle. The combination of GST cuts, a normal monsoon boosting rural demand, an approximate 100-basis-point interest rate reduction this year, and income tax benefits is creating favourable conditions for the auto sector just as the festive season begins.
However, the current 50% tariff on Indian goods puts exporters at a disadvantage compared to countries like China, Japan, Vietnam, and Indonesia. On the positive side, the US has reduced tariffs on Japanese automobiles and parts to 15% from 27.5% after finalising a new trade deal, and if India negotiates properly with the US and signs a trade agreement, it could significantly benefit auto exports and investor sentiment.
*The companies mentioned in the article are for information purposes only. This is not investment advice.
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