Rs 2.4 lakh crore GST boost! Jefferies, Morgan Stanley decode impact on stocks, economy, ETCFO
Prime Minister Narendra Modi’s announcement of the GST reform on Independence Day has prompted brokerages to forecast a demand boost of Rs 2.4 lakh crore, potentially adding 50–70 basis points to India’s GDP growth and reshaping the nation’s consumption story. With implementation expected around Diwali, Sensex and Nifty surged on Monday as investors rushed to pick auto and consumption stocks likely to be the biggest winners.
The indirect tax reforms, coming on the heels of income tax cuts rolled out in April, promise what analysts are calling a “meaningful push to consumption” just as India heads into the crucial festive season.
Kotak Equities said the GST rate rationalization could unleash a Rs 2.4 trillion demand boost, with autos and consumer durables emerging as the biggest winners, though cement may see more limited gains.
The proposal to streamline GST into two principal slabs of 5% and 18%, with a higher 40% rate for luxury and sin goods, represents a seismic shift. Nearly 99% of items in the 12% bracket are expected to move to 5%, while around 90% of goods in the 28% slab may shift to 18%.
“Rationalisation of GST rates should boost discretionary consumption by meaningfully lowering prices for end consumers. Importantly, reductions in GST rates could help reduce the burden on low-income households, given that indirect tax structures are regressive in nature. Indeed, the share of indirect taxes in total gross taxes has declined from 44.8% in FY2015 to 41.5% in FY2025,” Morgan Stanley’s Upasana Chachra said.
Moreover, an improving trend in aggregate demand is likely to lift business sentiment, support higher capacity utilisation rates, and ultimately augur well for the labour market outlook and private capex activity. “These combined forces of better consumption and investment activity are likely to stimulate economic activity and provide upside to GDP growth estimates of 50–70 bps on an annualised basis,” the brokerage said.
CPI inflation is estimated to fall by 40 basis points. While the fiscal balances of the Centre and states are likely to come under pressure due to revenue losses, this could be partly offset by higher GDP growth, improving direct and indirect tax collections. “We expect the net effect on growth to be positive, as the multiplier for indirect tax cuts is 1.1,” Morgan Stanley said.
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Fiscal Impact and Inflation Relief
Emkay Global’s analysis revealed the fiscal mathematics: “We estimate GST changes-led general government revenue loss of ~0.4% of GDP on an annualized basis, with states bearing a disproportionate hit.” The brokerage projects “CPI inflation could also ease by ~50-60 bps over a year.”
“This move strengthens our sectoral rotation theme ‘Consumption over Capex’,” Emkay added, highlighting the fundamental shift in India’s growth drivers.
Besides, the GST rate cut may raise hopes of further rate cuts by the RBI. ICICI Securities believes next-generation GST reforms could be another step in a series of pro-growth measures announced by policymakers in the recent past, beginning with tax cuts for the middle-income group, cuts in interest rates, liquidity boosts, and a revival in government capex.
The brokerage emphasized the strategic importance of the reforms, stating, “In our view, such steps are necessary to cushion against uncertainties emanating from the external sector due to US tariffs and increasingly inward-looking global policies.”
Sectoral Impact
Jefferies identified the sector’s biggest beneficiaries upfront: “2-wheelers, cement, AC likely big beneficiaries…With govt. targeting relief in GST rates for certain ‘essential and aspirational goods’, we believe likely beneficiaries may include currently 28% taxed goods such as 2-wheelers, ACs, and possibly small cars & Hybrids (eff. rate 29-31%).”
In case the tax is lowered for the auto sector by 10%, it could boost demand by 15-20%, according to Nomura estimates. However, the brokerage warned of a potential casualty: “EVs (currently at 5% GST rate) may see a meaningful impact on demand as the price gap with ICE will likely increase sharply.”
Other sectors that stand to benefit include consumer staples (through better demand, lower raw material costs), cement, hotels, retail (footwear), consumer durables (mainly RACs), logistics, quick commerce, and EMS, Motilal said.
Key stock beneficiaries, according to brokerages, are HUL, Britannia, Maruti, Ashok Leyland, Ultratech, Voltas, Amber, Delhivery, LemonTree, Swiggy, HDFC Bank, and Bajaj Finance.
Sectors such as tractors, which are currently taxed at 12%, could move to the 5% bracket, while air-conditioners (ACs) may benefit from a shift to 18%. Food companies may also benefit as their tax may drop from 12% to 5%, Jefferies said.
Morgan Stanley flagged potential near-term disruption: “In the near term, there could be some impact on volume growth as consumers potentially defer their spending until clarity emerges on the new GST regime.”
Nomura echoed this concern, saying that widespread newsflow of the GST cut may further slow down consumption temporarily in certain big-ticket categories such as automobiles and ACs, and dealers carrying inventory may bear inventory loss, which companies may need to compensate for.
With Rs 2.4 lakh crore in demand stimulus in the offing, India stands on the brink of its most significant consumption boost in years. As markets position for this tectonic shift from ‘Capex to Consumption’, the next few months could determine which stocks emerge as the ultimate winners in Modi’s GST revolution 2.0.
The message from brokerages is clear: buckle up for a consumption cycle that could redefine India’s growth trajectory.
