GST 2.0 Rollout Accelerates Mass Consumption and Formalisation Trend: Report

Implementation of GST 2.0 will spur consumption trends, with broader formalisation leading to mass-market demand and high-end consumers demanding more premium choices, says a report issued Tuesday.

In its latest report, Emkay Global Financial Services pointed out that robust macro conditions still support elevated valuations in the sector, even if tangible growth momentum is still pending.

"With the anticipatory rally before the GST 2.0 announcement, reward was imminent. Factoring in benefits and raising target prices on some stocks, our stock calls are unchanged," the report added.

The new GST structure suggests a weighted average of 6% for food and beverages and 12% for home and personal care (HPC) products.

Eagerly anticipated rationalisation steps under GST 2.0 are reduced rates on food and personal care products. Most home care products continue to attract a tax at 18%, with categories of personal care products experiencing reductions, leaving discretionary ones in the top bracket.

Emkay's calculations assumed the organised food and beverages market with a total industry size of ₹7 trillion (90% penetration; 30% organised) will have its weighted GST come down from 10% to 6%.

In comparison, the organised HPC segment, sized at ₹2 trillion (65% penetration; 67% organised), may benefit from a 5 percentage point drop to 12%.

“Within FMCG, the top five categories benefiting from the reduction are soaps, oral care, hair care, biscuits, and salty snacks. We see reduction in personal care products addressing slowdown concerns, while the benefits for biscuits and salty snacks are expected to foster formalisation,” the report highlighted.

The note also commented that regulatory steps in the last year have laid a stronger foundation for speeding up growth. Companies with robust execution skills and product offerings that suit customers' requirements are likely to be the biggest gainers.

"Our listed companies will gain from faster formalisation, but effective implementation will be important to ward off competition from new-gen brands. The pre-GST 2.0 announcement rally turned out to be profitable," it further stated.