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Informist, Friday, Sept. 5, 2025

 

By Anjana Therese Antony

 

MUMBAI – Despite the restructuring of the goods and services tax announced Wednesday, broking firms have not revised their corporate earnings estimates for 2025-26 (Apr-Mar). The broking firms will wait for the benefits from these reforms to actually kick in, particularly during the ongoing festival season, to consider any revision in their estimates. However, equity analysts continue to believe that the overall financial growth of top listed companies will be better in the second half of FY26 compared to the first half, largely due to the recent GST reforms.

 

The core challenge in stimulating consumer demand lies not primarily in tax reductions, but in addressing the underlying liquidity constraints, Nishant Lakkar, founder and chief executive officer of AAA Rating Consultants and Advisors, said. "GST reductions alone are insufficient to drive a significant increase in non-essentials consumption, though they may provide some uplift for essential purchases where affordability thresholds are already met," Lakkar said.

 

Sectors which are widely expected to reap the benefits of the latest tax reforms include fast-moving consumer goods, automobile, and construction. Revenues of consumer goods and automobile companies together account for around 15% of the aggregate top line of the Nifty 200 companies.

 

On Wednesday, the GST Council approved the proposal for a two-slab GST structure of 5% and 18%, and a new special tax of 40%, effective Sept. 22. It brought 99% of items from the 12% tax slab to the 5% slab and almost 90% of items under the 28% tax slab to the 18% tax slab. 

 

Analysts said it is too early to predict the likely growth in volume and earnings till the end of the ongoing festival season. "Currently, it is a bit difficult to quantify what the impact of GST reforms will be on FMCG volume growth. But I think an uptick is expected in the coming months," Kruttika P., consumer goods analyst at Mirae Asset Sharekhan, said. She also said the firm has not changed its earnings estimates for the sector as of now, adding that it will review the situation once the festival season is over. 

 

The consumer goods sector has been feeling the heat of weak demand and seeing low volumes for a couple of years now. Analysts expect the sector to see gradual earnings growth in the coming quarters once festive demand picks up, but this is expected to be a gradual increase. Just because of the GST relief, consumers are not going to start brushing their teeth thrice a day or use more hair oil than usual, Kranthi Bathini, equity strategist at WealthMills Securities, said. "I don't want to quantify (the impact of reforms) at this point of time, because this is all consumer behaviour," Bathini said, adding that the margins of FMCG companies will improve if demand improves. 

 

Analysts also refrained from revising the FY26 earnings growth estimate for the auto sector, but a few analysts have revised expectations for the two-wheeler segment. "GST cuts should lead to some improvement (in volumes)...a 150-bps (basis points) impact on two-wheeler volumes (in FY26) can come due to GST cuts," said Prateek Ladha, a research associate covering the automobile sector at Nirmal Bang Institutional Equities. Before the government's GST relief, he had expected two-wheeler volumes to rise 8-10% in FY26. 

 

Meanwhile, Maruti Suzuki India Chairman R.C. Bhargava said the small car market will now grow by over 10% this year due to the latest reforms. "...the overall passenger car market should grow by 6-8%," he told Business Standard newspaper Thursday. He also expects car prices to fall 9%, considering that the reforms will not impact automakers' transportation costs and dealer margins. 

 

For the construction and engineering sector, which is dependent on capital expenditure, some analysts see risks to the government's spending in FY27 and beyond. "In our view, government capex growth in the coming year is unlikely to exceed single digits and could potentially turn negative to offset tax losses," Aniket Jain, lead analyst (capital goods) at YES Securities, said in a note. Jain also said a GST rate cut alone is unlikely to trigger a recovery in the private sector's capital expenditure in the near term. 

 

However, experts are bullish about cement companies as GST on cement has been reduced to 18% from 28%. They said cement demand will likely recover after the monsoon season and some companies will possibly hike prices due to higher demand. However, they, too, refrained from providing a revised estimate for growth in volume, prices, and earnings for the coming quarters due to the GST reforms.  End 

 

With inputs from Anshul Choudhary, Avishek Rakshit, Rajesh Gajra, Anand JC, Shakshi Jain, and Narayana Krishna.
 

Edited by Tanima Banerjee

 

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