India’s proposed GST reforms could create opportunities for investors in consumption-themed funds, according to experts. The reforms aim to rationalise tax slabs across key sectors, potentially lowering retail prices on everyday goods and high-ticket discretionary items, and supporting broader household spending.
Proposed GST changes and consumer impact
The GST 2.0 proposal includes:
- Products currently taxed at 12%, such as processed foods, footwear under ₹1,000, and select wellness items, may move to the 5% slab, reducing costs for millions of households.
- High-ticket consumer durables, including air conditioners and large televisions, could see GST drop from 28% to 18%, potentially lowering retail prices by roughly 8%.
- Cement, widely used in housing and construction, may also see a rate cut, easing costs for retail home improvement and larger projects.
- Luxury and sin goods like cigarettes and aerated beverages are expected to remain at higher rates or attract additional cess, protecting government revenue.
Why consumption funds could benefit
According to Senior Vice President & Fund Manager – Equity at UTI AMC: “GST slab rationalisation is likely to benefit consumption-oriented sectors. Large-ticket items may become more affordable, which could support medium- to long-term discretionary spending.”
He also noted that indirect tax cuts impact all sections of the population, while direct tax cuts mainly benefit higher-income households: “The combined impact of direct tax cuts, GST cuts and lower EMIs on account of monetary easings is meaningful and can drive improvement in consumption over H2FY26 and beyond.”
Sectors likely to gain
The Wright Research report on smallcase identifies multiple sectors poised to benefit from GST 2.0 and related macro tailwinds:
- Consumer durables and electronics: Improved affordability could drive penetration in tier-2 and tier-3 markets.
- Automobiles: Two-wheelers and passenger vehicles may see higher rural and urban demand.
- Cement: Lower rates could reduce project and home improvement costs.
- FMCG and retail: Branded products could see volume growth as affordability improves relative to unbranded options.
- Internet platforms and digital services: Rising consumer demand and MSME adoption could strengthen revenues.
Broader context for investors
Wright Research highlights that GST 2.0 is only one of several levers driving consumption growth. Rising rural incomes, women-centric cash transfers, and easing inflation could amplify the effect of lower GST rates, creating a favourable environment for discretionary and essential spending alike.
For investors in consumption-focused funds, these measures may provide:
- Opportunities to rebalance portfolios towards sectors poised for demand growth.
- Exposure to a medium- to long-term consumption theme, supported by policy and macro tailwinds.
