GST revamp to drive macro tailwinds; Antique backs consumer discretionary

The GST 2.0 is expected to deliver a significant consumption boost of around ₹2.8 trillion, equivalent to 0.7 per cent of GDP, Antique Broking said

The recently unveiled Goods & Services Tax (GST) rationalisation "poses a series of macro tailwinds", analysts at Antique Broking said, adding that they prefer consumer discretionary over staples. 

 

The GST Council, chaired by the Union Finance Minister, reached a consensus to adopt a simplified two-tier rate structure, i.e., 5 per cent and 12 per cent. The new rates will take effect from September 22, the first day of Navratri.

 

Tax levied on household consumption items, handicrafts, agriculture-related goods and more goods will now attract a 5 per cent tax.  A special rate of 40 per cent will apply to all tobacco-related products. 

   

The GST 2.0 is expected to deliver a significant consumption boost of around ₹2.8 trillion, equivalent to 0.7 per cent of gross domestic product, Antique Broking said in a report. Contrary to market concerns, the move will not put pressure on the fiscal deficit or government capital expenditure, as the reduction largely stems from the removal of the compensation cess, which had been earmarked for debt repayment, the note said.  

 

Economists also expect the change to ease headline consumer price inflation by nearly 100 basis points, creating space for the Reserve Bank of India (RBI) to consider a further 25 basis point policy rate cut, potentially in October or December, Antique said. 

 

Capacity utilisation is nearing the critical 80 per cent mark, last seen in 2010-11, potentially setting the stage for a new private investment cycle, the note said. The pickup in domestic demand may also offset the drag from the 50 per cent US tariff, which could weigh on GDP by 50-80 basis points. " However, any early resolution of the 25% penal tariff will be another key positive."

 

In Antique Broking's model portfolio, they favour consumer discretionary over staples, given their higher price elasticity. "We also remain positive on the domestic investment theme, with the private capex cycle expected to pick up in the coming quarters as overall capacity utilisation approaches the crucial 80 per cent mark, last seen in 2010-11." 

 

The brokerage has a 'Buy' rating on Havells India and Crompton Greaves Consumer Electricals.  

Source: Antique Broking

 

Similarly, analysts at Bernstein earlier said that consumer stocks already reflect elevated valuations. "We see continued potential upside in related stocks driven by earnings momentum rather than a structural multi-year re-rating of the entire consumer sector." 

 

The distinction between staple FMCG and discretionary segments should also be considered, Bernstein said. "The direct impact of the GST cut on consumption is likely to vary by product," wrote Venugopal Garre, managing director and India head of research at Bernstein wrote in a coauthored note with Nikhil Arela.