GST Cuts Drive Auto Boom | Can the rally continue? | CA Rachana Ranade

"I feel yes at least in the shorter term understand the impacts. Number one because of the GST cut is it going to boost demand? Is it going to boost the top line bottom line? Yes. And please understand it's a structural change. Government has not said that GST will be cut only for this festive season. It's going to be a long-lasting effect because of a structural change. Will it impact will it have a positive impact on auto sector? Yes. Number two, as I mentioned, festive demand to obviously sales will see a positive impact. And number three, if you have seen the US jobs data which was released, I guess yesterday, uh the number of job addition is less than expected. And if that be so, is there a possible rate cut coming up in US? Yes. And with that a possible rate cut coming in India as well. If that be so, auto loans are going to be slashed. The rate of interest will be slashed. Will that be again a positive for auto sector? Absolutely yes."

"Some people I saw on the net were asking will the margins fall? Ideally no. Because whatever is the GST benefit that a company is going to get they're going to just pass it on to the consumers. So gross profit margins, net profit margins, operating profit margins, I don't think they should be hampered. Huh? Of course, if they give extra discounts beyond GST rate cuts just to boost uh the demand during Diwali or Navaratri, then margins could be impacted. But understand with a volume at play operating leverage can come into picture and which can again I mean positively impact the overall auto sector."

"In such cases whenever the rallies are sharp just check one point that the valuations have not overshot because if the overall auto space goes into an overvalued space if the RSI gets overheated then there could be some profit booking"

"understand the backward and forward linkages as well now if I'm talking about auto understand uh steel see more demand for auto is equal to more demand for steel more demand for auto is equal to more demand for glass the windshields I mean the shields right the the windows Glass demand will go up. If I'm talking about more demand for uh autos, of course, tires demand will increase. Rubber demand is going to increase. Demand for seat, seat covers is going to increase. Music system is going to increase. Air conditioner inside the car, the demand for that is going to increase. So, all in all, it has a very strong backward linkage. And a boost to auto is automatically going to boost some other sectors as well at a backward integration. What about a forward integration? See, boost for auto is equal to more people are going to demand cars. is equal to more car insurance will be sold is equal to more auto loans may be taken that is the reason why insurance sector will see a good boost uh it could be banks NBFCs which also could see a big boost so that is the reason why forward linkages are also very crucial for auto as a sector"

"And with that a possible rate cut coming in India as well. If that be so, auto loans are going to be slashed. The rate of interest will be slashed. Will that be again a positive for auto sector? Absolutely yes."

"Ideally no. Because whatever is the GST benefit that a company is going to get they're going to just pass it on to the consumers. So gross profit margins, net profit margins, operating profit margins, I don't think they should be hampered."