Prime Minister Narendra Modi’s announcement of a significant Goods and Services Tax (GST) reform to be rolled out by Diwali, made during his Independence Day speech on August 15, 2025, is growth-accretive and likely to be a major market driver, according to Seshadri Sen, Head of Research and Strategist at Emkay Global Financial Services Ltd.
Emkay Global has raised its Nifty 50 target to 28,000 for September 2026 and recommends investors focus on autos and cement to play this theme.
“The second-order benefits of the GST rationalization are key: this speeds up formalization of the economy and improves competitiveness of Indian companies. We think the government should absorb the revenue loss through the higher deficit, as the growth accretion will cover the shortfall within 2-3 years,” Sen said in a report.
GST restructuring to lower household burden, spur consumption
According to reports, the government is likely to rationalize the GST structure for essential and daily-use items, with the aim of reducing the tax burden on households and stimulating consumption demand. The proposed changes include eliminating the 12% and 28% GST slabs and consolidating products under three categories:
> 5%: Most items currently in the 12% slab (around 99%)
> 18%: Around 90% of items from the 28% slab
> 40%: Luxury and sin goods
Sen noted that this move is a “massive positive” for India as it provides a consumption stimulus, simplifies compliance with fewer tax rates, and promotes greater formalization of the economy by reducing the incentive for tax evasion.
Big boost for autos, durables, and cement
Passenger vehicles, two-wheelers, air conditioners, cement, and packaged foods are expected to benefit the most from the reform. Sen highlighted that the best strategy would be to invest in companies catering to mass-market segments within these categories.
Emkay Global’s preferred picks include Hero MotoCorp, Maruti Suzuki India, Voltas, and Ultratech Cement, with Bikaji Foods as a small-cap idea. The brokerage expects earnings upgrades of 10–15% for companies in these sectors, even though the direct impact on Nifty earnings will be modest (less than 1%).
Fiscal impact manageable
The brokerage estimates a fiscal slippage of 0.1% – 0.2% of GDP for FY26 and FY27, which could be partly offset by buoyancy and asset sales.
“The government should look through near-term fiscal slippage; India’s complex GST is a millstone around the growth neck, and rationalization is worth the risk. Strong macro-financial stability, highlighted by the recent ratings upgrade, makes this the perfect time to push this through,” Sen said.
Ratings upgrade offsets tariff overhang
Emkay acknowledged that the 50% tariffs imposed by the US on Indian goods remain a key overhang. However, S&P’s decision to upgrade India’s sovereign rating to BBB on August 14, 2025, provides a significant counterbalance.
“This is a timely recognition of India’s fortress balance sheet and will serve to calm potential investor fears around the impact of elevated US tariffs. It also, we believe, gives the government more freedom to risk a higher fiscal deficit through GST rationalization,” Sen added.
Market Strategy
Calling GST rationalization a “re-rating trigger,” Emkay Global expects the reform to deliver long-term growth benefits and revive earnings momentum. The brokerage has raised its Nifty 50 target to 28,000, valuing it at an aggressive 20.7x one-year forward P/E ratio, which is one standard deviation above the five-year average.
“The GST rationalization offsets near-term worries on weak growth and tepid earnings. The six-week downtrend should now reverse, as the outlook for earnings improves considerably, and valuations will factor in the broader positives of this big-ticket reform measure,” Sen said.
Emkay remains Overweight on Consumer Discretionary, while favoring small and mid-cap names in staples and cement within the materials space.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
