GST revamp on the table: Auto, FMCG, infra, consumer durables, insurers set to gain?

Investors turned cautious ahead of the outcome of the 56th GST Council meeting, chaired by Finance Minister Nirmala Sitharaman, amid expectations of rate rationalisation. The Council is considering scrapping the 12% and 28% slabs in favour of a two-tier structure of 5% and 18%, along with a 40% levy on ‘sin’ goods such as tobacco and other luxury items.

Against this backdrop, the Sensex and Nifty traded with marginal gains, while metal stocks extended their rally, led by Tata Steel, which surged nearly 6%.

Here are the sectors in focus, which could either benefit or face headwinds from the GST cuts:

Auto:
Automobiles currently attract 28% GST. Under the revised structure, sub-4 metre cars with engines up to 1,200cc and two-wheelers below 350cc are expected to fall under the 18% slab, whereas luxury vehicles would be placed under the special 40% rate.

Tata Motors, Mahindra & Mahindra, Eicher Motors, and Maruti Suzuki could face a mixed outlook as they have both sub-4 metre cars and SUVs in their portfolios. Bajaj Auto could benefit from this tax reduction with its large two-wheeler portfolio.

FMCG:
Since Prime Minister Narendra Modi announced the GST rejig, Nifty FMCG has maintained its winning streak. Common goods such as toiletries may see a reduction from 18% to 5%. Food items like ghee and butter, currently taxed at 12%, could also come down to 5%. Other items such as namkeen, biscuits, cakes, and chocolates would likely be reduced to 5%.

Hindustan Unilever, Tata Consumer Products, Colgate-Palmolive, and other FMCG companies could see an upside as a result. The key watch will be on ITC, which earns maximum profits from cigarette sales and remains exposed to the 40% GST under the ‘sin goods’ category.

Infrastructure:
Currently, cement faces 28% GST, which is expected to come down to 18%. If approved, this cut would boost the real estate, highways, and construction sectors.

Consumer Durables:

Air conditioners and 32-inch televisions could get cheaper if GST is reduced from 28% to 18%. Washing machines and refrigerators, on the other hand, may not see significant pricing action since these goods already fall under the 18% slab.

Companies could face an inventory overhang this festive season, as many consumers may defer purchases until the GST rate cuts take effect, leading to mixed sentiment toward consumer durable stocks.

Insurance Sector:

The GST Council is also considering exempting insurance premiums on health and term life plans, which currently attract 18% GST. This could result in mixed sentiments: policyholders may benefit, but insurers could face challenges as it removes their ability to claim input tax credits.

SBI Life and HDFC Life will be in focus, with year-to-date gains of 25% and 30% respectively.

ICICI Prudential Life will also be watched closely, as it has recorded negative year-to-date performance and the proposed exemptions could impact its outlook.