GST Reforms: Know Which Goods Become Cheaper!

Prime Minister Narendra Modi made a big announcement of GST reforms on the occasion of Independence Day on August 15. It is said that this decision of the government will not only reduce the tax burden on the public, but will also encourage consumption. This ‘surprise gift’ from the government has created a wave of joy among investors. The situation is such that auto, cement, consumer and financial stocks have risen because if prices fall, it will have a direct impact on consumption.

Currently, there are four rates of GST – 5%, 12%, 18% and 28%. The government is considering abolishing the 12% and 28% slabs and implementing a two-tier GST structure. Apart from this, it is also considering imposing a high GST of up to 40 percent on illicit goods like tobacco, pan masala, cigarettes, and gambling. According to the report, ‘This is a big positive step for India as it will increase consumption, ease of doing business at lower rates, it will make the economy more formal as the tax gap will be reduced, which will be beneficial.’

Brokerage firms have said that if the 28% GST slab on passenger vehicles and two-wheelers is reduced, then the automobile sector will benefit a lot. Jefferies also said that companies like Jazz, Hero, TVS and Eicher will all benefit from this reduction. Motilal Oswal has also included Tata Motors and Ashok Leyland in the list of beneficiaries due to the large presence of these companies in the passenger vehicle segment.

The reduction in GST rates is also expected to boost demand for air-conditioners and white goods. CLSA said Voltas and Havells will benefit the most.”We expect this change to have a strong impact on air conditioner demand, especially after recent signs of weakness,” the brokerage said. Cement currently attracts GST at 28%. Motilal Oswal estimates that if the rate is reduced to 18%, prices could fall by 7.5-8%.

Food and beverages such as milk, bottled water, juices and packaged food items will come under the 5% slab from the 12% slab, hence the margins of companies like Bikaji, Gopal Snacks, Nestle India and Dabur will decrease. Jefferies said that ayurvedic companies like Dabur and Emami stand to gain more, as most ayurvedic products come in the 12% slab, which could possibly be reduced to 5%.

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