The overhaul of the GST rates is seen as the start of kick-starting the next wave of reforms in the country. The government seems to be in a clear overdrive to boost consumption and the overall economy. As the economy is looking at tackling the steep 50% Trump tariff that came into effect on August 27, the latest GST announcements are seen as a catalysts to push the growth engine forward.
Here are top 7 takeaways for Indian investors on how this rate restructure could potentially impact the country –
Consumer is King – Lower GST tax slab
One central theme that the GST rate restructure is expected to bring forth is boosting consumption. From ACs to air purifiers, cars to cable, almost 99% of the current list of items in the 12% slab will move to the 5% slab. Nearly 90% of those goods in the 28% slab are now going to shift to the 18% level. Interestingly, the timing of the implementation is also pertinent. September 22 marks the beginning of the long festive season in India starting with Navratri and ending with Dhanteras and Diwali. This period generally sees a boost in buying and the lower rates are set to provide further impetus.
Auto the big beneficiary
The auto sector is considered as one of the biggest beneficiaries of the GST rate cut. The sector has long demanded a uniform GST for various segments . With the current revision in rates, it is expected to encourage buyers to plan their next car buy soon. In this context also the September 22 implementation date is significant. The tax cuts on two-wheelers and small cars is expected to bring significant demand inflexion;. The SUV tax cut is a surprise win and lower tax on CVs and tractors are set to propel around growth buzz. Even for Eicher, the makers of Royal Enfield (with 350 cc bikes commanding a 40% rate in portfolio), it’s a win. Only 8% of the portfolio will see a tax hike, while 80% get a tax cut.
Moreover, with the rates coming down and the difference between EVs (with 5% GST) and hybrids now at 18% (with 28% GST earlier), those keen on green and environment-friendly options have more alternatives.
Daily essentials not so expensive any more?
One of the biggest winners from the GST rate cuts is the everyday consumer. The items ranging from the packaged foods, personal care products, to electronics, after this latest GST announcement will now carry lower tax rates.
Furthermore, with essentials like roti, paratha, hair oil, ice cream, and TVs becoming cheaper, the households may have more disposable income to spend on other products and services.
Now for the investors, this indicates potential growth in FMCG, consumer durables, and retail sectors. This is because higher consumption tends to translate into better revenues and profits for listed companies in these industries.
High-end clothing gets expensive
The new GST reform, though largely positive, could lead to some segments seeing a higher rate cut. For instance, apparel and clothing accessories priced above Rs 2,500 will now attract 18% GST, higher than before.
Cement set to see demand boost
The Cement prices have been soft lately but the revised GST rates are Demand was subdued in the recent times but the reduction in GST rate is seen as a positive development for the industry over the medium term. The benefits from price cuts are likely to be passed on to consumers and this is expected to support demand. Furthermore, removal of compensation cess of Rs 400/t on coal is also expected to bring down power/fuel costs marginally. This is likely to be a positive as well.
Earnings upgrade on the cards
Most importantly, all these measures to boost consumption are expected to kick-start the earnings upgrade cycle. Most experts are of the opinion that these demand-boosting measures, coupled with lower inflation is expected to kickstart the higher earnings cycle from the third quarter as the impact of these measures starts reflecting.
What’s the deal with tobacco sector
The tobacco sector is another key sector to watch out for. Most analysts believe that this could also see potential benefit, as the shift to an ad-valorem rate of 40% implies a 5 percentage point tax cut, as per calculations by Jefferies. Moreover, the tax is unlikely to be implemented before the year-end. Also, this removes the tax uncertainty associated with the tobacco space.
Overall, the GST rate revision is seen as a key positive that is set to help offset the negative impact of the steep Trump tariff that’s come into effect recently. Moreover, the Govt has reiterated its faith in the Indian industry in terms of passing the benefit of lower taxes to consumers by removing the anti-profiteering clause.