Newsletter January, 2026

The Indian auto sector has outperformed the BSE 500 in 2025, supported initially by the GST cuts announced by the Government of India in August 2025; Auto is the biggest beneficiary of GST cuts. Historically, indirect tax reductions in the auto sector have triggered a strong demand upcycle, typically sustaining for 12–18 months. This time, we believe this may be repeated, given the surge in demand following the GST cuts. However, we believe the current growth cycle has deeper structural drivers beyond this near-term stimulus. Drawing parallels with China, auto demand witnessed a sharp inflection once per capita income crossed ~USD 2,500, with car penetration per 1,000 people increasing nearly 2.5x over the subsequent three years. India is approaching a similar threshold, suggesting a multi-year runway for vehicle penetration. Additionally, the Government’s sustained focus on road infrastructure development and the introduction of barrier-free tolling systems are materially improving average cruising speeds, reducing travel time, and enhancing fuel efficiency—making personal mobility increasingly attractive. Finally, the accelerating push toward localization across the auto value chain is lowering ownership costs and improving spare part availability, a critical consideration for first-time buyers. Collectively, these factors provide multiple levers for sustained growth in the Indian auto sector over the medium term.