Consumption stocks yet to fully price GST 2.0 boost: Analysts

The consumer sector, according to a Motilal Oswal note, reported the third quarter of mid-single-digit earnings growth of 5 per cent year-on-year in Q2-FY26

The long-awaited Goods and Services Tax overhaul (GST 2.0) may have lifted industry sentiment, but consumption stocks are yet to fully price in the impact even after two months of the new rates becoming applicable, analysts said, as transitional hiccups and prolonged monsoon clouded September quarter (Q2-FY26) earnings.

 

The full impact of the measures, they believe, will start to flow for the companies starting Q3-FY26 and Q4-FY26 as volumes improve, which will get adequately reflected in the bottom-line.

 

“Some green shoots are already visible as regards semi-urban and rural economy-focused companies on the back of a good monsoon. The stocks, however, are not fully reflecting the GST rate cut benefits. Once the actual numbers come through in companies’ performance, the markets, too, will take notice,” said Gaurang Shah, head investment strategist at Geojit Financial Services.

 

At the bourses, meanwhile, nearly half of the Indian consumption stocks, or 14 out of the 30 stocks, are trading with losses since the Finance Minister's announcement of the GST revamp on September 3, data shows.

 

Further, since the implementation two months back (September 22), 17 of the 30 stocks are in the red, with Dixon Technologies, Avenue Supermarts and Trent among the top losers, down up to 15 per cent.

 

On the upside, Asian Paints (up 16 per cent), Titan Co (up 12 per cent) and Hero MotoCorp (up 11 per cent) were among the top gainers.

 

The consumer sector, according to a Motilal Oswal note, reported the third quarter of mid-single-digit earnings growth of 5 per cent year-on-year (Y-o-Y) in Q2-FY26. "Staple companies' demand was stable; however, the GST transition and an extended monsoon hit the overall performance during the quarter."

Ground report

At the ground level, meanwhile, prices have come off sharply in the backdrop of the GST rate cut in October, said analysts at Nomura.

 

Sharp price deceleration was observed for cars (-6.8 per cent m-o-m) and two-wheelers (-4.5 per cent), and there have been broad-based cuts in the prices of electronic items, clothing and footwear, medical expenses, toiletries, and some food items, with an average contraction between -0.1 per cent to -0.8 per cent, Nomura said. 

 

G Chokkalingam, founder and head of research at Equinomics Research, echoed Shah's views that the full-pass-through impact for companies, and in turn the stock prices will be felt in the October–December 2025 quarter.

 

However, he does not see much impact on the stocks of mid-and small-cap companies given the liquidity pressure amid a boom in the primary markets. "For these segments to do well, some pullback is needed in the primary market activity. However, large-cap companies are likely to react to the positive results of companies in the backdrop of GST rate cuts."

 

As regards the fast moving consumer goods (FMCG) space, the sharp, broad-based reduction in the GST rates of most food and key personal care categories was expected to revive consumption partially. Weak consumption in the past two-three years, according to analysts at Kotak Institutional Equities, was partly attributable to commodity inflation-led price CAGR tracking ahead of income growth.

 

The deflationary impact of the GST rate cut, they said, was partly expected to address this headwind. “Further, easing commodity prices (tea palm, coffee), good monsoon, favorable base for urban consumption, the recent personal income tax reduction and the upcoming pay commission augur well for FMCG consumption in the next 12-15 months,” they wrote in a recent note.