Motilal Oswal upgrades Colgate to 'Buy'; HUL, Marico top picks amid GST 2.0

Motilal Oswal continues to favour leading staples companies, including HUL, GCPL and Marico, as beneficiaries of renewed consumption momentum.

Motilal Oswal on Consumer Sector: Domestic brokerage Motilal Oswal has upgraded its rating for Colgate-Palmolive from ‘Neutral’ to ‘Buy,’ citing the stock’s ~35 per cent correction over the past 12 months and attractive valuation at 46x and 41x P/E for FY26 and FY27, respectively. 

 

On the bourses, Colgate-Palmolive shares climbed as much as 1.82 per cent to an intraday high of ₹2,461.85. By 11:45 AM, the stock had retreated from its peak, slipping 0.3 per cent to ₹2,410.2. In comparison, the BSE Sensex was trading 0.28 per cent higher at 80,940.59 levels.

 

The brokerage continues to favour leading staples companies, including Hindustan Unilever Limited (HUL), Godrej Consumer Products Limited (GCPL), and Marico, as beneficiaries of renewed consumption momentum.

 

 

The upgrade followed the government’s GST rate rationalisation, announced after the 56th GST Council meeting, which slashed taxes across most consumer categories. 

 

Several segments previously taxed at 18 per cent have now been reduced to 5 per cent, with the new rates effective from 22nd September 2025 (excluding cigarettes). The move, coinciding with the festive season, analysts believe, is expected to drive a meaningful revival in both rural and urban consumption.

 

In its August report, Motilal Oswal already highlighted that rationalised GST rates and a simplified tax structure would accelerate consumption recovery. Over the past 2-3 years, consumption had been subdued due to commodity inflation, rising interest rates, and lingering post-Covid pressures. While earlier policy focus was on infrastructure and manufacturing, consumption revival has now emerged as a top priority. The government has taken several steps to support demand, including interest rate cuts, income tax relief, and now GST reductions.

 

With macroeconomic conditions improving, inflation easing, and a favourable monsoon, the consumption sector is well-positioned for recovery over the next 12-15 months. Companies are likely to pass on the GST benefits to consumers through price reductions or increased grammage in price-point packs, aligning with anti-profiteering norms. Motilal Oswal anticipates an additional 200-300 basis points (bps) of volume growth across companies, with categories having a higher “low-unit price” mix seeing the greatest benefit.

 

Major catalyst for essential categories

 

The GST Council has moved from a four-tier system (5 per cent, 12 per cent, 18 per cent, 28 per cent + cess) to a streamlined two-rate structure: a standard 18 per cent rate and a 5 per cent merit rate. A special 40 per cent de-merit rate will apply to select products like cigarettes and carbonated beverages. Key staples, including personal care products (hair oil, shampoo, soaps, oral care) and foods (biscuits, noodles, namkeen, dairy products, instant coffee, chocolates, fruit juices), now attract just 5 per cent GST, down from 12-18 per cent.

 

Motilal Oswal identified Britannia, Nestlé, Emami, and Colgate as major beneficiaries. Based on revenue mix assumptions and GST changes, the brokerage has revised revenue and earnings estimates for FY26 and FY27, factoring in potential volume gains. 

 

Colgate, for instance, stands to benefit from ~12 per cent effective GST reduction across ~95 per cent of its domestic portfolio, while Britannia sees a similar impact across ~90 per cent of its domestic sales. Emami and Nestlé are expected to gain ~9 per cent and ~8 per cent, respectively. Other beneficiaries include Dabur, GCPL, HUL, Marico, and Jyothy Labs, albeit with relatively lower exposure.

 

Cigarettes and near-term adjustments

 

The revised GST rate for cigarettes will reduce total taxes to 40 per cent of MRP, compared with the earlier structure, though the final impact depends on the National Calamity Contingent Duty (NCCD). Full clarity is expected before March 31, 2026. Meanwhile, Motilal Oswal is modeling neutral impact for the category in its earnings estimates.

 

Ahead of the GST transition, distribution channels may face short-term disruption as trade adjusts to the new rates, analysts said. Retailers and distributors could reduce stocking levels to avoid holding higher-taxed inventory, while companies recalibrate packaging and price points. These pressures are expected to be temporary, with normalcy resuming once fresh inventory flows into the market.

 

Medium-term outlook

 

While FMCG stocks have already rallied over the past two weeks, partly anticipating GST benefits, Motilal Oswal analysts stressed that the structural advantages – particularly in essential foods and personal care – will underpin volume-led growth in the medium-term. 

 

The GST 2.0 reform mirrors the impact seen after the first GST rollout in 2017, when volume and revenue growth across companies accelerated by 500-1,000 bps in the subsequent fiscal years.

 

With consumption revival now firmly on the policy agenda and supportive macro factors in place, analysts at Motilal Oswal expect healthy growth for staples companies over the next 12-15 months, reinforcing their upgrade of Colgate to Buy.