Investment bank sees direct tax cuts boosting premium segments while rural demand remains uncertain; maintains selective approach with Maruti Suzuki and Mahindra & Mahindra as top picks.
03 Feb 2025 | 3735 Views | By Sarthak Mahajan
BNP Paribas Securities India has released its analysis of the Union Budget 2026, highlighting both opportunities and challenges for India's automotive sector. The research report, authored by Kumar Rakesh, suggests that while tax cuts could boost demand, the benefits may not be uniform across all segments.
The investment bank ...
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BNP Paribas Securities India has released its analysis of the Union Budget 2026, highlighting both opportunities and challenges for India's automotive sector. The research report, authored by Kumar Rakesh, suggests that while tax cuts could boost demand, the benefits may not be uniform across all segments.
The investment bank views the direct tax cuts as a significant positive catalyst, particularly for entry-segment cars and premium motorcycles. According to the report, these segments could see stronger demand as they typically attract a higher proportion of salaried employees as customers. Maruti Suzuki, BNP Paribas' top sector pick, is well-positioned to benefit from these tax changes.
However, the outlook for rural demand remains uncertain. The report notes that budget allocations for key rural income transfer schemes like MGNREGA and PM-Kisan have remained flat year-over-year. While overall rural development funding has shown some recovery, execution risks persist, similar to the previous year's unutilized allocations.
For the commercial vehicle segment, BNP Paribas identifies mixed signals. The unchanged budgetary allocation for road construction could negatively impact commercial vehicle manufacturers. Additionally, the 11% reduction in defense procurement funding for heavy and medium vehicles may affect a key revenue stream for CV makers. However, the overall increase in capital expenditure could drive indirect demand for commercial vehicles.
The report also highlights several policy changes affecting the electric vehicle segment. While the government has maintained its EV incentive allocation at Rs 40 billion for FY26, BNP Paribas expects a reduction in per-vehicle incentives to accommodate growing EV adoption. The bank notes a shift in government focus from demand incentives to production incentives through PLI schemes.
BNP Paribas maintains a selective approach to the sector, with Maruti Suzuki and Mahindra & Mahindra as its top picks. The bank suggests investors should be stock-selective rather than taking broad sectoral positions, given the varying impact of budget measures across different automotive segments.
The analysis comes against the backdrop of what BNP Paribas describes as signs of demand slowdown and tightening financing conditions, particularly in the two-wheeler segment. While the budget offers some demand stimulus, the bank emphasizes that these measures may not translate into secular growth across all automotive segments.