By Reuters

The logo of Mahindra Electric Origin SUVs is seen on the bonnet of its newly launched Mahindra XEV 9e, an electric SUV, during its launch in Chennai, India, November 26, 2024. REUTERS

(Reuters) - India's auto stocks (.NIFTYAUTO) jumped as much as 3.7% to the highest level in nearly 11 months on Thursday after the government slashed consumption taxes, with analysts predicting a demand boost for the sector.

Auto shares were last up 1.9% to lead sectoral gains on the benchmark Nifty 50 (.NSEI) index, which was trading 0.6% higher.

Mahindra & Mahindra (MAHM.NS) and Eicher Motors (EICH.NS) both notched record highs and led gains on the auto index. Mahindra, up 6%, was the top gainer on the Nifty.

Late on Wednesday, the Goods and Services Tax Council approved lower taxes on hundreds of consumer items ranging from soaps to small cars to spur domestic demand in the face of steep U.S. tariffs.

The GST on small cars, motorcycles, buses, trucks and ambulances has been reduced to 18% from 28%.

"The total tax on all auto categories will decrease, benefiting all players," boosting overall demand, analysts Basudeb Banerjee and Rishi Kapadia at CLSA said in a note.

The effective tax on large-engine capacity cars and SUVs was lowered to 40%, as an additional levy was dropped.

Jefferies analysts said this is a "surprise win" for Mahindra as majority of its portfolio includes SUVs.

Peer Eicher is a key beneficiary from the tax cuts on tractors, which comprise 80% of its portfolio, the analysts said.

Reporting by Manvi Pant; Editing by Sonia Cheema and Mrigank Dhaniwala

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