The shares of Hero MotoCorp, the world’s largest maker of two-wheelers, are rallying because of a wave of renewed optimism. The scrip has gained 19.7% in the past month, and has gained 21% year-to-date. The share has thoroughly outperformed the Nifty Auto index, which has gained 6.8% in a month and 9.8% year-to-date.

One of the reasons behind the rally is renewed optimism in the industry that the sales of two-wheelers, which have been subdued lately, are expected to take off following the rationalisation of GST rates. Two-wheelers up to 350cc currently attract a GST rate of 28%, and two-wheelers above 350cc attract another 3% cess and hence get taxed at 31%. In terms of volumes, the two-wheeler industry has been down 4% in the first four months of FY26 year-over-year, whereas estimates projected a growth of high single-digits, according to a report from Motilal Oswal Financial Services.

It is believed that two-wheelers are expected to see GST rates slashed from 28% to 18%. This, in tandem with the reduction in repo rate, is expected to drive up demand. However, analysts are also wary that the government will push the implementation of ABS for all two-wheelers. If the government pushes ahead with implementing the ABS mandate, then it is possible that the net benefit from GST rationalisation would be significantly less than expected.

“The requirement for (mandating ABS) is also going to grow multifold from the current capacity. It will go up as much as fivefold, and the entire industry is trying to look at how to meet these requirements…This is going to be expensive…It does require certain capacity building, and I don’t think it will happen by January,” Vikram Kasbekar, acting CEO, Hero MotoCorp, said at the company’s first-quarter earnings call. Kasbekar added that the apex industry body SIAM is in talks with the government to provide them with alternatives, along with “looking at the practical timeline” to implement the mandate.

Hero MotoCorp posted a 5.5% decline in revenue to ₹9,579 crore for the first quarter of FY26, and a near-flat net profit of ₹1,126 crore. While these results are far from optimistic, they bettered the company’s expectations. The company has seen an improvement in gross margin of 100 basis points in the quarter, and has also been aggressive about its export strategy. “Last year, (exports) grew by about 40% plus. And this year also, we want to grow by over 40%. And going forward, we would like to have 10% of our revenue and volumes coming through from the global business,” Kasbekar said.

Hero MotoCorp shares were trading 1.16% higher at ₹5055.90 in late trading.