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The markets are hopeful of the GST Council to mostly deliver what Prime Minister Modi had said on rate rejig in his August 15 Independence Day speech, but select pockets, analysts said, are pricing in too much expectations and have run up too fast, too soon.
Any disappointment on the rate front, they believe, could trigger a knee jerk correction in the markets, especially in the stocks and sectors that have seen a good run in the last few weeks in the hope of rate rationalisation by the GST Council meet that got underway on Wednesday.
“The markets are a bit overoptimistic. Indian tax payers and consumers have already been given direct tax benefits in Budget 2025. I think there will be a limited dosage of (rate cut) concession. That said, the government also needs to give fiscal incentive to exporters in the backdrop of stiff US tariffs,” said G Chokkalingam, founder and head of research at Equinomics Research.
At the bourses meanwhile, the return at the benchmark index level (Nifty 50) has been muted since August 15 (Independence Day) till date amid US tariff woes. However, GST rate slab rejig has triggered a rally in consumption-related stocks since then.
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Nifty Auto has been the biggest gainer among the lot, rallying around 6.1 per cent since August 14, ACE Equity data shows. Nifty Consumer Durables, Nifty FMCG, Nifty India Consumption are among the other notable gainers, rallying up to 5.8 per cent during this period, data suggests.
“Auto sector will benefit the most by GST rate rationalisation as the (rate) cut will be complemented by good monsoons and a possible rise in rural demand. Textile sector should also get some relief in the backdrop of US tariffs. A disappointment on the GST rate rejig front can see the Nifty 50 correct at least 1 per cent from the current levels,” Chokkalingam said.
Among others, GST tax changes, analysts believe, should give a boost consumption in FMCG, consumer durables, cement, and insurance sectors.
“The removal of the 12 per cent tax bracket will be positive for processed foods, footwear (less than Rs 1,000), hotels (less than Rs 7,500), garments (over Rs 1,000), and farm equipment. Relief in headline tax rates for Insurance premium is also likely. Lower tax on cement & some other construction material is positive for developer margins,” analysts at Jefferies had said in a recent note.
The GST rate rejig optimism in stock prices, especially consumption-related counters, according to Gaurang Shah, senior vice-president at Geojit Financial Services, has soared in since the markets got a hint of a possible slab recast. Any disappointment, he said, can see the Nifty 50 drop to 24,200 levels.
“Going by what PM Modi said, a lot is expected. I hope the GST council delivers as per market’s expectations. If anyone is investing in the markets from a short-term perspective based on GST rate rejig, they need to step back. However, from a long-term perspective, dips can be bought into. FMCG, consumer durables (non-discretionary), stocks of power supply companies, auto (depending on engine capacity and vehicle length), and insurance are some sectors that look promising in the backdrop of GST rate rejig,” Shah said.
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