Prime Minister Narendra Modi indicated a major change in the GST structure in his address from the Red Fort on August 15. After this, there was a tremendous boom in the stock markets on August 18. Sensex and Nifty climbed by about 1.5 percent in early trade. PM Modi said that the new GST structure can be implemented by Diwali, which will give great relief to the common consumers and will also benefit the companies.
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Possible structure of new GST rates
Under the new proposal, 5% and 18% slabs will be retained, while 12% and 28% slabs are set to be removed. This will have a big impact on the automobile sector, like cars and two-wheelers, FMCG companies, and insurance. There is a discussion of removing 18% GST on health insurance premiums and making it zero. However, tax on sin goods like tobacco and luxury cars can increase up to 40%. Economists estimate that this reform can increase India’s GDP growth by about 0.6%.
Big relief to the auto sector
At present, along with 28% GST on passenger vehicles, a cess of 1% to 22% is also levied, which takes the total tax to 50%. If it is reduced to 18%, there will be a big drop in the prices of cars and two-wheelers. This will have a direct impact on demand, and sales can increase rapidly.
New shine in FMCG and consumer durables
Experts say that everyday items like butter, ghee, noodles, and snacks can become cheaper. This will increase the demand and volume of companies like HUL, Nestle, Gopal Snack, and Bikaji. At the same time, tax on air conditioners and large TVs is expected to be reduced to 18%, which can reduce their prices by 8 to 10%. This change can further strengthen consumer demand in the festive season.
What the reforms mean for investors
Experts believe that these changes will improve the performance of consumption-based thematic mutual funds. But investors should avoid investing in haste. According to experts, only 5 to 10% of the portfolio should be invested in such thematic funds, and for the long term, investing in diversified funds like flexi-cap will be safe.
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Golden opportunity or risk?
GST reform will increase demand and will give new energy to the auto, FMCG, consumer durables, and insurance sectors. However, depending completely on a single theme can be risky. Therefore, it is wise for investors to keep a balanced portfolio and invest while keeping their financial goals in mind.