At 1:19pm, the Nifty FMCG index was up 0.6% and the Nifty Consumption index 0.48%, both outpacing the Nifty 50, which rose 0.37%. Mahindra & Mahindra, Colgate-Palmolive (India), and Britannia were among the top performers on the consumption gauge.
Since 15 August, the Nifty FMCG index has climbed 4.4%, compared with a 0.7% rise in the Nifty 50. Analysts expect the rally to sustain, underpinned by robust volume growth that could feed into stronger earnings.
The impact, however, will not be confined to consumption-heavy sectors. Experts say the GST cut will ripple across banks, non-banking financial companies (NBFCs), logistics, and other industries linked to consumer demand.
Ashish Gupta, chief investment officer at Axis Asset Management, said the benefit is “fairly broad-based,” spanning automobiles, fast-moving consumer goods (FMCG), consumer durables, insurance, and hotels.
“Beyond these first-order effects, there will also be second-order impacts on banks and NBFCs, logistics, quick commerce, and EMS companies in the supply chain for consumer durables, making both direct and indirect beneficiaries relevant,” he noted.
On 3 September, the GST Council simplified the regime by reducing slabs to 5% and 18%, while retaining a 40% rate for sin and luxury goods. The 12% and 28% brackets were scrapped, with most categories shifting to lower rates. Tax on several staples and essentials was also cut from 18% to 5%.
Autos, durables, footwear to gain more than staples
Analysts, however, say the effect on staples will be limited: lower prices won’t prompt households to buy extra soap, oil, or shampoo. The bigger boost will come from discretionary items. A cheaper car or television can trigger new purchases, while FMCG demand is relatively inelastic.
Siddhant Chhabria, research analyst and fund manager at Mirae Asset Mutual Fund, said autos, consumer durables, and footwear are likely to see a stronger demand lift than FMCG. “For FMCG items like soaps or toothpaste, demand may not see a significant increase, but for consumer durables and footwear, we can expect much greater demand elasticity,” he said.
For FMCG companies, the pickup in demand would not be significant, however, consumers would buy established brands due to better pricing rather than switching to cheaper alternatives, benefiting the listed FMCG players said George Thomas, fund manager at Quantum Mutual Fund.
Other triggers could add tailwinds. Income-tax cuts announced in the budget, a good monsoon supporting rural demand, and now the GST cut together point to a strong festive season. “If that plays out well through October and November, it could provide a much-needed impetus for the broader economy,” said Devender Singhal, EVP and fund manager at Kotak Mahindra AMC.
Maruti Suzuki has jumped 14.6% since 15 August, TVS Motor 13.7%, and Nestlé 12.1%. Dabur India is up 10.4%, Whirlpool of India 10.1%, Hindustan Unilever Ltd (HUL) 8.5%, while Tata Motors gained 4.7%.
“While the near-term strength of the rally in consumption stocks may be limited as the cuts were largely expected, the move is seen as a tailwind for consumption growth, which has been lagging at 5-8% in recent years,” said Gupta.
Starting third quarter, as benefits reflect in higher volumes and corporate earnings, the rally is expected to be more sustainable, Gupta said.
Impact on earnings
The new slabs take effect on 22 September.
Gupta cautioned that in the near term, purchases may be deferred as consumers wait for lower prices, which could weigh on July-September results. But in the following three to four quarters, the cut should reflect in stronger volume growth and margin expansion, he said.
Companies are expected to see benefit more in terms of volume growth rather than immediate margin expansion, said Quantum Mutual Fund’s Thomas.
“In past tax rationalizations, the government has been vigilant to ensure that companies pass on benefits to consumers, so margin expansion may not happen in the short term. Over the longer term, however, it provides companies some flexibility to maintain margins,” he added.
Stocks likely to benefit
A Nomura report dated 4 September flagged Colgate, Britannia, Dabur, and HUL as among the biggest beneficiaries.
Colgate’s portfolio—largely toothpaste, toothbrushes, and personal wash products—now attracts lower GST. Britannia, with 85% of its sales from biscuits, cakes, and dairy, also stands to gain.
Nestlé benefits from reductions across coffee, chocolates, noodles, and milkmaid, which make up two-thirds of sales. HUL will see relief on about 40% of its business, spanning soaps, shampoos, toothpastes, health drinks, and coffee.
