GST impact could remain for 2 quarters; 18 stocks to buy which will benefit the most

Trade

• Watchlist
• Portfolio
• Message
• Set Alert

 

 

Choose Stock Exchange: BSE LIVE NSE LIVE

26 Aug, 2025 12:21

Volume

Todays L/H

More

×

The Goods & Services Tax or GST has now become a reality and with just a couple of days into effect, it has already caused disruptions. The economy stands to gain over the long-term, but the short-term pain could well last for 2 quarters, suggest experts.

At the stroke of midnight of June 30th, President Pranab Mukherjee and Modi symbolically pressed a buzzer, signalling the launch of goods and services tax (GST).

There was too much uncertainty well ahead of the event and post that things have not looked good either. But, every new reform has its own shortcomings and advantages.

With GST, the economy is said to gain strength and should help in positive revision of India’s rating. Implementation of the GST will be positive for India's rating as it will lead to higher GDP growth and increased tax revenues, Moody's Investors Service said.

But, that is for the long term. In the short term, there will be disruptions across sectors and that would impact companies to certain extent – for some, it will be positive while for other it may pinch a bit.

“GST impact could remain to some extent for a quarter or two; however, it is a short-term disruption. We may see muted growth in earnings as companies may need to adjust with their production processes with the new framework, adjust to the input tax credit system and more importantly they need to handle their working capital requirements, ” D K Aggarwal, Chairman, and MD, SMC Investments and Advisors Ltd told Moneycontrol.

“Also the ignorance of the GST structure and adjustment in taxations may stress the earnings of the companies for some time. Comparatively, the MSME sector is going to burn the fingers due to higher compliance and as they need to move towards the organized sector,” he said.

Though GST implementation will crush the unorganised sector and organised sector would gain but at the same time, it would give an equal level playing to the companies.

The implementation of the GST, set to come into effect from July 1, will replace the existing multiple indirect taxes with uniform tax across India, making it easier to do business in India and in turn boosting the economy, but there will be volatility in short term.

Different sectors may face different issues like how the anti-profiteering rule will work. Further, how to claim a refund on tax already paid, how to fill the GST return forms etc.

“As activity in some pockets of distribution channels are near to stand still. And people at the retail channel are standing in the sideways waiting for the execution, which may dent the demand in Q2 in the short term,” Abnish Kumar Sudhanshu, Director & Research Head, Amrapali Aadya Trading & Investments told Moneycontrol. If the disruption continues, it may precipitate in the next quarter also.

We have collated a list of top 18 stocks which investors can look at buying as these names stand to gain the most from the implementation of GST:

We expect HUL to gain market share with the implementation of GST as business shifts from unorganised to organised segment. HUL will benefit from moving to a moderately lower 18 percent tax slab and its major raw materials- consumer staples falling in the lowest tax labs (0-5 percent).

Further, incremental benefits may arise from the input tax credits. Broad-based portfolio of brands, innovative pipeline, robust distribution network (enhanced focus on direct reach expansion) & government thrust to stimulate the rural economy will help HUL.

Major segments of Dabur, soaps and hair oil falls under lower tax slab of 18 percent compared to the current effective rate of 26-28 percent.

The largest segment honey continues to fall under the exempt category. Dabur can be an indirect beneficiary if GST helps in bringing down the rural inflation as major consumer staples coming under the exempt category which could impetus to the rural demand.

Apprehension over the GST rates has been an overhang on the stock for a while. The final GST rates with a cap on Cess leads to a lower incidence of taxes than the current effective tax rate.

Leadership position in cigarette category, continuous investment behind brand building & innovations in other FMCG business will also drive the business growth.

Transport Corporation of India Ltd (TCI) is one of the largest well-integrated players in the organised logistics industry providing Freight, supply chain, warehousing solutions & shipping services.

It has a fleet of 9000 trucks, 5 ships and 11mn sq ft of warehousing space. TCI will emerge as a Key beneficiary from the implementation of Goods & Services Tax (GST), which is expected to boost third party logistic players (3PL) business.

With the improvement in scale, free movement of goods and lower transit time is expected to bring overall efficiency thereby improvement in margin profile. The Freight and supply chain business is on a path to revival with improvement in domestic macros.

GST rate for steel has finalized at 18 percent as compared to 19.5 percent, additionally, the benefit of lower tax rate of 5 percent on the major inputs used by them like coal and iron ore will benefit the sector.

Maruti Suzuki India Ltd (MSIL) being a leader in the passenger vehicle is likely to benefit from the GST. Until now, tax on the automobiles range between 28-45 percent; however, GST regime brought the taxes down to 18-28 percent. Small cars, which were tax until now between 25-27 percent of the tax bracket, will become slightly costlier as post GST; they will fall under the 28 percent tax bracket.

On the contrary, big cars, which used to fall under higher tax bracket, now are applicable at 28 percent of GST. As we know Maruti having more than 60 percent of the domestic market is aggressively focusing on premium and big cars, are likely to remain benefitted from the tax reduction.

Earlier, our restaurant bill used to have service tax, service charge, and VAT, but from JULY 1st, GST will subsume service tax and VAT. Regardless, of goods and services, the credit of input will be available for adjustment against the output liability.

This will optimize the working capital of restaurants, hence providing the better services. Overall, we can say, GST is likely to bring cheers for both restaurants owners as well as foodies.

Under GST, the restaurant will fall under 18 percent, a drop of almost 22 percent. We believe specialty restaurant is well stand to grab the opportunity.

Following the fact of complex taxation in cement, we know currently cement companies in most states are paying an indirect tax rate in the range of 27 percent to 30 percent depending on the type of cement. For cement, GST rate has been set at 28 percent.

Packaged cement, which comprises of a major portion of cement sales, is actually expected to attract a lower rate than the present due to GST.

Further, GST would also subsume all local and municipal taxes, which are presently levied in addition to excise and VAT and makes the actual tax incidence much higher, should certainly augur well for the cement business, which largely operates on a retail price per bag basis.

Going by above statement, we are overall positive on the cement stocks, particularly on India Cement. The company is fundamentally sound and well placed to grow big in the future on the back of strong demand arising from affordable housing projects and government increasing focus on infrastructure development.

Until now, the price of a movie ticket is based on the entertainment tax levied by state governments. And in states, entertainment tax varies from zero to 100 percent for different states.

But now in GST, movie tickets costing Rs 100 or less will have 18 percent tax while ticket costing Rs 100 or more will have 28 percent of Tax. Going by above entertainment tax reduction, we believe PVR stands well to capture the wide market.

After the implementation of GST, small cinema houses will feel the pinch of falling in 18 percent bracket, so ultimately raising their ticket price. Here, PVR is well prepared to capture the rising opportunity in the multiplexes. Fundamentally, the company has got better financial with the huge opportunity to grow in the future.

GST at 18 percent for adhesive as against existing tax of 23 percent will certainly benefit Pidilite most in terms of margins expansions (if not passed on completely) as adhesives account for over 65 percent of its total revenue.

Lower tax rate on toothpaste (GST at 18 percent) augurs well for Colgate as its current indirect tax rates are ~600bps higher than the GST rate.

Tax on coal under GST regime would be at 5 percent against the prevailing rate of 12 percent, which we believe will benefit to merchant players like JSW Energy.

Merchant power sales account for over 60 percent of its total sales volume. A duty reduction of 7 percent will aid JSW to reduce its overall generation cost by 3 percent.

As milk is exempted from GST, Heritage Foods will be benefitted most considering it drives over 95 percent of revenue from milk and milk products.

The Company continues to focus on profitable execution of the large Order Book, selective order picking, on-time deliveries & operational excellence through digitalization.

The management is also emphasizing on cost competitiveness, continuous optimization of working capital, restructuring of its business portfolio and value creation with an aim to enhance its Return on Equity.

Implementation of GST is expected to have far-reaching effects by bringing large parts of the informal economy into the formal system where compliance and accountability standards are of a higher order

The company will continue to focus on delivering value to clients by helping them strengthen their logistics value chain, provide exciting career opportunities to employees, while further enhancing profitability and increasing ROCE across businesses.

Going forward, it will continue to focus on existing businesses. It will leverage diversified network and products to further strengthen leadership in business. In India, the company will continue to concentrate on increasing market share and targeting newer geographies.

With current businesses largely in steady state and minimal capex requirement, strong balance sheet will bring healthy growth prospects for the company. Also, the implementation of GST will boost the earnings of the company going forward

The Strong volume growth and market share gains continued with AL’s domestic M&HCV volume growth vs. industry growth. While the recent growth has been driven by replacement demand (replacing over 10 years old diesel vehicles by government order) and infra demand.

Moreover, the management expects improvement in mining/infra sector to be the next drivers for growth. Apart from a revival in M&HCV demand, the management expects exports and defense as the next major growth driver - management targets 33 percent of revenues in the medium-term from the export segment.

According to the management, the hub and spoke model of transport of goods is likely to gain with the implementation of the GST regime and it will boost the sales of vehicles, driven by requirements in the logistics sector.

The company has reported good quarter earning with commendable growth in the majority of the businesses. Major contributors to the growth have been the real estate, consumer, and chemicals businesses.

The management expects in FY18, implementation of GST would provide strong momentum for a much better economic environment and stronger consumer demand. Going forward, through its CREATE strategy, the company would continue to strengthen its position in all its core businesses while fostering an inspiring place to work.

The company has a strong balance sheet and robust cash flows. Continuing government spending on infrastructure, development of smart cities, interest rate cuts supported by interest subsidy schemes for housing will be the key demand drivers for Cement.

The company is well poised to reap the benefits of investment in the growth plans of its businesses with the sustained growth in the Indian economy. Recently, the government has fixed GST rate of 28 percent for cement, whereas existing tax rate is 24 percent.

This slight increase in tax rate may lead cement companies to hike prices. However lower tax on transportation sector and lower freight cost could benefit cement companies. The industry can also benefit from the 5 percent decrease in the tax rate on coal and metal.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol are their own and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

Follow @kshanand