GST rationalisation to boost consumption, weigh on infra and defence: JM Financial

The 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, has put rate rationalisation on the table, with proposals to scrap the existing 12% and 28% slabs in favour of a simplified two-tier system of 5% and 18%, alongside a 40% levy on sin goods such as tobacco and luxury items. The move, if approved, could trigger significant shifts across key sectors, according to reports.

Domestic brokerage JM Financial has rebalanced its model portfolio following the proposed Goods and Services Tax (GST) and income tax cuts, shifting its focus towards consumption-driven sectors, while trimming exposure to infrastructure, defence, and banking, financial services, and insurance (BFSI) sectors.

The brokerage opined that revenue loss from tax cuts could restrict fiscal space, prompting a cautious stance on capex-heavy sectors. While this is a significant boost for consumption, lower revenue could constrain fiscal space, potentially impacting the pace of infra and defence capex.

“We turn more bullish on consumption and incrementally negative on infra and defence capex. We also turn negative on BFSI on moderating loan growth and elevated credit costs,” it said.

As part of the rejig, the brokerage upgraded its stance on several sectors, turning overweight on autos (from neutral), consumer (from underweight), cement (from underweight), and internet (from underweight), while maintaining its overweight view on hotels and real estate. On the other hand, it reduced exposure in sectors where risks have risen, cutting BFSI to underweight from overweight and infrastructure, industrials, ports and defence to underweight from overweight, while keeping power and utilities underweight. It retained a neutral rating on IT services.

Sectoral views

Auto & Auto Ancillaries

Upgraded to overweight on easing entry-level challenges, GST rate cuts, and better liquidity. Picks: Hero MotoCorp , TVS Motor , Maruti Suzuki , and M&M.

BFSI

Cut to underweight on sluggish credit growth, rising asset quality risks, and weak capex. Prefers large banks ( ICIC I Bank, HDFC Bank , SBI ), Bajaj Finance in NBFCs, and 360 ONE WAM, HDFC Life in non-lending.

Cement

Upgraded to overweight on post-monsoon demand recovery, GST cut hopes, and capacity expansion. Top picks: UltraTech Cement , Dalmia Bharat.

Consumer

Upgraded to overweight with volume recovery, rural resilience, and festive demand. Staples picks: Britannia, Marico, HUL. Discretionary: Titan, Jubilant Foodworks. In consumer durables, the brokerage prefers Polycab for industry-leading growth and returns; KEI also well-placed.

Infra, Industrials, Ports & Defence

Downgraded to underweight due to fiscal constraints from GST cuts. Key picks: L&T, Adani Ports.

Internet

Upgraded to overweight; top picks: Eternal (Zomato), Nykaa.

IT Services

Neutral on muted demand; prefers Coforge, Tech Mahindra, Infosys, Wipro, TCS, HCL Tech.

Metals & Mining

Shifted to neutral on weak Q2 outlook. Picks: Hindalco, Tata Steel, JSW Steel.

Oil & Gas

Cut to underweight. Positive on Reliance (telecom tariff hike, Jio IPO), constructive on GAIL. Cautious on OMCs.

Pharma & Healthcare

Stays underweight. Prefers Apollo Hospitals, Aster DM, and Torrent Pharma.

Power & Utilities

Stays underweight on muted demand; prefers JSW Energy.

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