GST Rate Rationalisation: Catalyst For Consumption? Analysts Say These Sectors Will Get A Boost

Reforms in the Goods and Services Tax are on the horizon and brokerages are weighing in on the potential impact of the likely developments that are expected to move the market.

Both Jefferies and Morgan Stanley believe that a rationalisation of tax slabs could drive a virtuous cycle of growth. While a potential tax cut on consumer durables and other goods could provide a much-needed push to consumption, the timing and extent of these cuts remain uncertain.

Jefferies sees the "second leg of GST reforms" as an expected development in the fourth quarter of the financial year 2025.

It anticipates a simplified rate slab structure, with a good chance that GST on cement, two-wheelers, and air conditioners could be lowered to 18% from the current 28%. Other potential rate reductions are expected for processed foods, footwear, and garments, though passenger cars are likely to be excluded.

Jefferies believes that this tax cut, coupled with other policy actions, will provide a positive push to consumption and help reignite a slowing economy.

Morgan Stanley also has a similar stance suggesting that GST cut could drive a "virtuous upcycle," like the the excise duty cuts in 2008. The firm highlights that a drop in vehicle prices due to tax cuts would make cars more affordable, addressing the issue of cost inflation amid slower income growth. This essentially puts the sector back on a growth path, the brokerage noted.

Morgan Stanley picks Maruti Suzuki India, Mahindra & Mahindra, Ashok Leyland, and TVS Motor as stocks set to benefit from the reforms.

The brokerage also notes that while the government has mentioned simplifying the tax structure, the exact details of which goods will see a reduction are still unclear. They said investors need to eye the September GST meeting and outcome.