GST revamp to fuel consumption growth: Motilal Oswal's sector of the week

The recent tax cuts and GST reform, along with the broader policy shift, indicate a push toward consumption-driven growth, Motilal Oswal said

The Goods and Services Tax (GST) Council's recent decision to simplify tax bands promises to cut costs across a wide range of goods, positioning India's retail sector for a consumption-led rebound. The new structure, which goes into effect on September 22, keeps the 40 per cent charge for sin and luxury items while streamlining the system into two main slabs: 5 per cent and 18 per cent. 

 

It is anticipated that areas including clothing, footwear, consumer electronics, and everyday necessities will see the biggest effects. Shoes up to ₹2,500 also see a sharp drop to 5 per cent, while apparel priced between ₹1,000 and ₹2,500 now only pays 5 per cent tax rather than 12 per cent, increasing affordability in the mid-premium market. 

 

A large basket of necessities has been reduced to about 5 per cent or even zero per cent in some situations, while consumer gadgets, such as televisions and air conditioners, have gone from 28 per cent to 18 per cent. A widespread decrease in retail prices is probably going to result from the required pass-through of rate decreases to consumers.

 

The mass and mid-premium demand may benefit most from these changes. It is anticipated that organised footwear and clothing companies will become more competitive with their unorganised counterparts, reversing the decline that occurred when the GST on footwear was hiked to 12 per cent.  

 

While consumers wait for the higher prices, there may be short-term delays in consumer electronics purchases, but demand is expected to increase after the holiday season. Conversely, daily necessities stand to gain from a shift toward branded consumption as well as a volume increase.

 

But there are still difficulties. Working capital and margins for merchants have long been stretched by the continuation of inverted duty structures, where input materials are subject to higher GST rates than finished goods. The continued taxation of inputs like adhesives, rubber soles, synthetic leather, and man-made fibres at rates ranging from 12 to 18 per cent reduces competitiveness. Although the administration has admitted the problem, it is still unclear what steps will be taken to address it.

 

The recent tax cuts and GST reform, along with the broader policy shift, clearly indicate a push toward consumption-driven growth. Organised retail is in a position to take advantage of increased demand in the mass and mid-premium segments thanks to rationalised rates that lower-end pricing. Over the medium term, this reset could mark a structural boost for the sector, widening the formal market’s share and deepening consumer engagement across categories.

 

Amber Enterprises - Target price: ₹9,000

Amber Enterprises is continuously increasing the share of components in RACs, adding new clients across AC and consumer durables, and expanding wallet share with existing customers, which supports sustainable growth in the consumer durables division. The GST 2.0 reforms, finalised by the GST Council, have reduced the rate on RACs from 28 per cent to 18 per cent, materially improving affordability and setting to drive a sharp rebound in RAC demand, benefitting Amber as a key supplier to AC manufacturers. 

 

Further, with ongoing capex, acquisitions in niche electronics, and diversification across new electronics segments, the company is well-positioned to capture demand acceleration from GST-driven consumption tailwinds. We expect revenue/Ebitda/PAT to deliver a CAGR of 24 per cent / 32 per cent /54 per cent over FY25-28.

Trent - Target price: ₹6,400

Trent's growth momentum is supported by strong cost controls and disciplined execution, which continue to deliver healthy operating performance. The GST 2.0 reforms, which have reduced rates on apparel in the ₹1,000–₹2,500 price band from 12 per cent to 5 per cent, are expected to materially improve affordability and drive stronger demand across Trent’s key formats, particularly Zudio. 

 

We remain positive on Trent given its robust footprint expansion, a long runway for growth in Star (presence in just 10 cities), and the scaling up of emerging categories such as Beauty, Innerwear, Footwear, and LGDs. We expect revenue/Ebitda/PAT to deliver a CAGR of 20 per cent / 18 per cent /17 per cent over FY25-28, aided by GST-driven consumption tailwinds and aggressive store expansion.