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Prime Minister Narendra Modi's announcement regarding the overhaul of India's Goods and Services Tax (GST) structure, dubbed GST Reforms 2.0, has triggered significant market activity and reshaped investor sentiment across Dalal Street. The promise of collapsing the existing four-slab GST structure into a simplified two-bracket system (5% and 18%, excluding sin goods) has ignited a wave of optimism, with brokerages identifying over 40 stocks across various sectors poised to benefit substantially. The immediate market reaction was euphoric, characterized by rallies in auto, financial, real estate, consumer, and cement stocks as investors strategically positioned themselves ahead of what analysts are calling the most profound indirect tax reform since the GST's initial implementation in 2017. This reform aims to streamline the tax structure, reduce the tax burden on consumers, and stimulate economic growth through increased consumption.
The proposed GST reforms are designed to reduce retail prices by an estimated 4-5%, providing much-needed relief to household budgets and fostering increased consumption across various product categories. The planned transition will see approximately 99% of goods currently categorized under the 12% slab shifting to the 5% bracket, while around 90% of items in the 28% bracket will be lowered to 18%. This comprehensive restructuring is expected to have a significant impact on various sectors. Jefferies highlights the auto sector as a major beneficiary, particularly two-wheelers, small cars, and commercial vehicles. These vehicles could see GST rates drop from 28% to 18%, representing a considerable 10 percentage point reduction. This reduction is anticipated to directly lower the purchase cost for consumers, thereby boosting demand and sales volumes for manufacturers. Jefferies specifically notes that listed two-wheeler original equipment manufacturers (OEMs) such as Bajaj, Hero, TVS, and Eicher are positioned to benefit uniformly from the rate cut. Maruti Suzuki is also highlighted as a standout winner in the passenger vehicle segment, particularly for small cars currently taxed at 29-31%. The brokerage also anticipates that Maruti Suzuki will benefit from potential rate cuts for hybrid vehicles, further enhancing its market position. Commercial vehicle manufacturers like Ashok Leyland, Tata Motors, and Eicher are also expected to gain from the reduced GST rates, while tractor manufacturers such as Mahindra and Escorts could see rates drop from 12% to 5% boosting agricultural sales.
The cement sector is facing a potential game-changing scenario as GST rates are slated to decrease from 28% to 18%. Jefferies estimates that this reduction could result in a substantial revenue impact for the government, potentially in the range of Rs 200-250 billion. However, this impact is seen as manageable, given the broader benefits of increased economic activity and consumer spending. Motilal Oswal notes that the lower GST rates could lead to a 7.5%/8% reduction in cement prices, making it more affordable for construction projects and infrastructure development. Key beneficiaries identified in the cement sector include Ultratech and JK Cement. For real estate developers, lower cement costs could translate to a 40-50 basis point margin improvement, as cement typically constitutes 4-5% of the overall cost of house construction in major cities. This improvement in margins could incentivize developers to undertake more projects, further stimulating economic activity in the real estate sector.
The consumer durables sector is also expected to witness significant benefits from the GST reforms. Air conditioners are highlighted as major winners, with rates potentially dropping from 28% to 18%. Jefferies specifically names Voltas, Blue Star, and Amber as positive beneficiaries, while Motilal Oswal highlights how Havells also benefits due to Lloyd's contributing approximately 24% of its topline. This reduction in GST rates is anticipated to make air conditioners more affordable, leading to increased demand, particularly during the hot summer months. In the consumer staples segment, companies like Dabur and Emami could benefit as many Ayurveda products are currently in the 12% tax bracket, which is likely to be reduced to 5%. This reduction will make these products more competitive and accessible to a wider consumer base.
The banking and financial sector stands to gain indirectly from the GST reforms due to the anticipated increase in consumption and credit demand. Motilal Oswal expects household confidence and demand for debt to increase, driving credit growth into double digits in the second half of fiscal year 2026. Key beneficiaries identified in this sector include ICICI Bank, HDFC Bank, and IDFC First Bank. The reduction in EMI obligations for consumer durables is also expected to benefit non-banking financial companies (NBFCs) lending in this segment, with Bajaj Finance specifically named as a beneficiary. The overall increase in economic activity and consumer spending is expected to boost the performance of the financial sector.
Emkay Global sees the GST reforms strengthening the sectoral rotation theme of consumption over capital expenditure. The brokerage also anticipates that potential CPI inflation could ease by 50-60 basis points over a year due to the lower tax rates. However, the brokerage cautions that the net impact on aggregate demand will depend on how the government offsets the resulting revenue loss. If fiscal targets are to be maintained, the revenue gap is likely to be bridged by reducing other expenditures. This highlights the importance of careful fiscal management to ensure that the benefits of the GST reforms are not offset by cuts in other essential areas of government spending.
The comprehensive list of stocks likely to benefit from the GST rate cuts spans across various sectors. In the auto sector, key beneficiaries include Maruti Suzuki, Tata Motors, Ashok Leyland, Bajaj Auto, Hero MotoCorp, TVS Motor Company, Eicher Motors, Mahindra & Mahindra, and Escorts Kubota. In the consumer & durables sector, potential winners include Voltas, Havells, Blue Star, Amber Enterprises, Whirlpool of India, Hindustan Unilever (HUL), Britannia Industries, Dabur India, Emami, ITC, Varun Beverages, and Patanjali Foods. The cement sector is expected to be boosted by Ultratech Cement and JK Cement. In the banking/finance sector, the anticipated beneficiaries include ICICI Bank, HDFC Bank, IDFC First Bank, and Bajaj Finance. The insurance sector could see gains for Niva Bupa, Max Life Insurance, HDFC Life Insurance, and Star Health and Allied Insurance. Retail and apparel companies such as Relaxo Footwears, Shoppers Stop, Trent, Vedant Fashions, Bata India, and Metro Brands are also expected to benefit. The hotel sector could see increased activity for Lemon Tree Hotels, Indian Hotels Company, and Chalet Hotels. Other companies such as Delhivery, Swiggy, Eternal, and Titan Company are also identified as potential beneficiaries.
In conclusion, the implementation of GST Reforms 2.0 represents a significant milestone in India's economic development. The simplified tax structure, reduced tax rates, and anticipated increase in consumption are expected to have a far-reaching impact across various sectors of the economy. While the government will need to carefully manage the fiscal implications of the reforms, the potential benefits in terms of increased economic activity, job creation, and improved consumer welfare are substantial. The market's positive response to the announcement underscores the confidence in the government's commitment to economic reforms and the potential for long-term growth.
Source: GST Reforms 2.0: Full list of over 40 stocks that can benefit from PM Modi's Diwali promise