GST 2.0: Key Stocks & Sectors to Watch in 2025

The Indian government is taking bold steps to simplify and lower the Goods and Services Tax (GST) rates, a move that’s long overdue. This GST reform, along with recent tax rationalization efforts, promises to offer a much-needed fiscal stimulus by reducing the tax burden on daily essentials, which, in turn, could lower prices and boost consumption.

Let’s dive into how these changes could reshape India’s economy, the sectors that stand to benefit and what this means for your investments.

GST Simplification: A Step Towards Greater Efficiency

India's GST system is notoriously complex, with rates spread across four tax slabs: 5%, 12%, 18% and 28%. The upcoming GST Reform 2.0 promises to simplify this structure by reducing it to just two main slabs—5% and 18%—while excluding sin goods like luxury cars and tobacco.

Market estimates suggest that almost 99% of goods in the 12% slab will be shifted to the 5% slab, while 90% of items in the 28% bracket will drop to 18%. This drastic reduction in tax rates will make goods more affordable and could spur increased consumer spending.

How Does This Affect Consumers?

For consumers, this change could mean lower prices on a variety of goods. With cheaper products, higher consumption and an overall fiscal stimulus, the government hopes to boost demand in a consumer-driven economy. Given that over 60% of India's GDP depends on consumer spending, estimates suggest that a rise in consumption could drive a 0.6% increase in nominal GDP.

But the question is: Can GST reforms balance the effects of tariffs?

Balancing Tariffs and GST Reforms: A Delicate Equation

While tax cuts like these are great for domestic consumption, they alone may not be enough to offset the challenges posed by US tariffs and the current international trade scenario. However, it’s possible that GST reductions can soften the impact of these tariffs.

That said, certain sectors could still face challenges, particularly industries like textiles, gems and jewellery, leather, chemicals and auto components, which rely heavily on exports. For example, the US is India's biggest buyer of jewellery and now that trade could be at risk. Additionally, small and medium enterprises in the textiles and leather industries could face a shrinking margin as US buyers shift to countries with lower tariffs, such as Vietnam and Bangladesh.

So, while lower GST could boost domestic consumption, it won’t directly help exporters who rely on US sales. The real solution lies in finding new buyers in new regions, where India could reroute its exports as global trade routes shift.

The good news? The US makes up only 10% of global trade, so there’s a vast world of opportunities waiting.

How GST Cuts Can Boost Key Sectors in India

Despite the export challenges, certain sectors stand to gain significantly from the proposed GST reforms. Here's a look at the major winners:

1. Auto Sector: A Big Winner

The auto sector is set to benefit tremendously, with GST rates on two-wheelers, small cars and commercial vehicles potentially dropping from 28% to 18%. This 10% reduction could make vehicles more affordable for consumers, leading to higher demand.

• Two-wheelers: Manufacturers like Bajaj Auto, Hero Motocorp, TVS Motor and Eicher Motors stand to gain.
• Passenger Vehicles: Maruti Suzuki is poised to benefit, particularly in small cars.
• Commercial Vehicles: Companies like Ashok Leyland and Tata Motors could see higher sales.
• Tractors: M&M and Escorts could see their tax rate drop from 12% to 5%, benefiting rural markets.

2. Cement: A Game-Changer

• The cement industry is poised for a significant uplift, as the GST on cement may fall from 28% to 18%. Companies like Ultratech, Ambuja Cements and JK Cement will benefit from this cut.
• For real estate developers, this change could improve margins, translating to potential cost savings in construction as cement constitutes 4-5% of house prices in top cities.

3. Consumer Durables: Positive Impact

• Consumer durables, such as air conditioners, are another beneficiary of the proposed GST cuts, with rates potentially dropping from 28% to 18%. Companies like Voltas and Blue Star could benefit.
• In the consumer staples sector, brands like Dabur and Emami will benefit, as many "Ayurveda" products currently fall under the 12% tax bracket, which could be reduced to 5%. Other beneficiaries include HUL and Britannia. Additionally, quick commerce segments and companies like Swiggy and Eternal could see indirect benefits.

Will These Changes Offset the GST Shortfall?

The government expects to lose around Rs 1 lakh crore annually or 0.4% of GDP by removing the higher GST slabs. However, estimates suggest that the 18% slab already contributes 65% of GST collections. Therefore, the shortfall could be offset by increased consumption.

To further cushion the blow, the government has also introduced a 40% GST on sin goods such as tobacco, luxury cars and online gaming, which could help make up for the potential revenue loss.

The Final Word

While the GST reforms appear to be a win for consumers and businesses in many sectors, the question remains: Can they truly balance out the impact of tariffs and shrinking exports?

The short answer: Maybe. But much depends on India’s ability to find new export markets and diversify its trade partners. Until then, the GST reforms will provide a much-needed fiscal boost and the auto, cement and consumer durable sectors will continue to benefit from lower tax rates.

Ready for the GST Reform Impact?

At Liquide, we’re closely monitoring these changes and their potential impact on your portfolio. With GST reforms shaping the future of several key sectors, this could be the perfect time to reassess your investments.

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