If the plan goes through, GST slabs will be rationalized in a way that lowers the tax burden across most consumer goods. Reports suggest the 12% and 28% slabs will be scrapped, with nearly all items in the 12% category moving down to 5% or zero, and most of the 28% slab items shifting into the 18% bracket. Sin and luxury goods will remain heavily taxed at 40%, but even these may get cheaper over time as the Compensation Cess is phased out.

That makes this more than just a tax tweak; it is a bet on consumption. The government is counting on lower GST at the point of sale to succeed where income-tax cuts and monetary easing have failed: reviving household demand, giving fresh life to struggling sectors, and setting the stage for private investment.

While the full contours of GST 2.0 will only be clear after the GST Council's meeting next month, investors are already placing their bets on which sectors stand to gain the most. From autos and FMCG to cement and financials, the impact could be far-reaching—if the gamble works.

Auto sales and the much-needed push

The auto industry has been on a slowdown lately. Even as premium car sales have performed decently, small cars have dragged down overall auto sales. The management of Maruti Suzuki India has been particularly vocal about the need for the government's intervention to make small cars more affordable.

The promised GST cut seems to have answered those prayers. Maruti is also expected to benefit from the anticipated tax cut on hybrid cars. As small cars drop into the 18% GST bracket, the resulting 8% drop in prices could be exactly what the buyers needed to trade up from 2-wheelers to small cars. Maruti's stock has appreciated by 14% in the two weeks since the announcement.

If the customers who upgrade from 2-wheelers to small cars are replaced by new buyers in the 2-wheeler segment, players like Hero MotoCorp and Bajaj Auto are also expected to benefit. Similarly, Ashok Leyland and Eicher Motors would benefit as the GST on commercial vehicles gets slashed from 28% to 18%.

That on tractors is likely to drop from 12% to 5%, resulting in about a 6% drop in prices if the entire GST cut is passed through. This should prop up the sales for the likes of Mahindra and Mahindra. The Nifty Auto Index has appreciated by 3.8% since the GST cut announcement on 15 August, sharply outperforming the broad market's 0.4% correction since then.

Consumption finally in focus?

Consumption demand has been patchy in India. Following the pandemic, a K-shaped recovery gave way to a monsoon-led rural recovery, while mass urban demand struggled.

The Reserve Bank of India (RBI) has slashed rates by 100 bps this fiscal year, and the finance ministry had announced massive income-tax cuts during the last budget. But neither monetary nor fiscal push has been able to move the needle on demand yet.

In this context, all hopes are pinned on the GST cuts. It is hoped that the reduction in point-of-sales taxes will do what income-tax cuts could not. Nifty FMCG Index has delivered about 12.5% CAGR over the last five years, sharply underperforming the 16.5% CAGR delivered by the broader market. As GST cuts lead to prices dropping by 4-5%, it could result in the much-awaited recovery in fast moving consumer goods (FMCG).

In recent quarters, we have had evidence that FMCG demand is not inelastic. Price hikes undertaken by FMCG majors recently have resulted in a drop in volumes, as consumers shifted to unbranded inorganic players. So, it is reasonable to expect that price cuts would lead to a pick-up in demand.

Of course, consumer discretionary purchases are expected to be more elastic. Drops in prices are more likely to push up the demand for air conditioners and refrigerators than that for soap. Key beneficiaries would include the likes of Voltas and Bluestar. This would give a much-needed leg up to consumer durables, which have underperformed so far in 2025.

A pick-up in demand is also critical from a macroeconomic point of view. If consumption picks up pace, the cobwebs on private capital expenditure (capex) are also likely to clear up. Since government capex can pull an economy only so far (keeping fiscal prudence in mind), a pick-up in private capex is crucial to support GDP growth.

Increased consumer confidence and private-capex-led GDP growth would, in turn, benefit the banking and financial services (BFS) sector. With stress among lenders likely to bottom out in the next quarter or so, BFS stocks appear ripe for picking.

Cement – premiumization play

The cement sector has seen green shoots recently. After years of intense competition, pricing pressures and eventually, industry consolidation, prices have returned to an uptrend.

Notwithstanding the microtrend seen over the last couple of months when monsoons led to prices struggling, the medium-term trend has been positive. This has supported margins, while inorganic expansion has helped revenue-growth for the large players.

While the GST rationalization will reportedly bring down cement from the 28% tax slab to 18%, demand for cement is inelastic. More than half of India's cement demand comes from house construction. Cement comprises 6% of the cost of building a new house, and 12-14% of the cost of renovation. Assuming that the entire cut is passed through to consumers, the price of cement is expected to moderate from approximately ₹350 a bag to ₹325. This will lead to a less than 1% drop in overall construction cost.

So, the GST cut is unlikely to lead to more demand for cement. So, the GST cut is unlikely to lead to more demand for cement. Instead, the demand for cement would be driven by private capex and the government's push for affordable housing, transportation, and infrastructure. That said, the GST cut can lead to a shift in demand towards higher-grade cement.

This, in turn, would result in higher margins for manufacturers. Furthermore, as premium products achieve deeper penetration, topline growth can pick up pace as well. Industry experts believe penetration of category A cement could expand from 40% to 55-60% by FY30. This should be particularly beneficial for pan-India players like Ultratech and Ambuja.

Caveats

The details of the promised GST reforms are not out yet. The GST Council is slated to meet on the 3-4 of September to decide on the proposal. The finance ministry has indicated an impact of ₹50,000 crore, as per a note by Motilal Oswal. This adds up to less than 20 bps of GDP. Considering that early reports had highlighted a hit of 30-40 bps on GDP, speculation has been wide-ranged.

The actual impact on demand would depend on which way the fine print tilts. If the government attempts to make up for the revenue loss by ramping up other taxes, the demand-push would be limited. Sectors such as real estate could also benefit from the GST cuts. But considering the sharp rally in such sectors in recent years, the scope for further upside is limited.

For more such analyses, read Profit Pulse.

Even in undervalued sectors like consumption, consumers may postpone demand to after Diwali in anticipation of the GST rate cut. Ironically, this could result in a hit to revenue growth in the quarter ending September 2025. The impact of the GST cuts would only show up starting Q3FY26. Until then, global factors, including tariffs, can keep markets antsy.

Ananya Roy is the founder of Credibull Capital, a SEBI-registered investment adviser. X: @ananyaroycfa