GST Rate Cut May Cause Temporary Blip in Consumer Sector in Q2FY26; PL Capital Sees Strong Recovery Ahead
- 14th August 2025
- 03:30:00 PM
- 4 min read
Summary
Prabhudas Lilladher expects a temporary blip in India’s consumer sector in Q2FY26 as buyers defer purchases ahead of GST 2.0 rate cuts. While festive stocking may also moderate, the brokerage sees strong recovery ahead driven by lower inflation, income tax relief, interest rate cuts, and rationalized GST slabs. ITC, Britannia, and Titan are PL Capital’s top picks to benefit from the structural demand revival.
Mumbai | August 26 – The Indian consumer sector could face a short-term demand disruption in Q2FY26 as buyers and trade channels defer purchases in anticipation of GST 2.0 rate cuts. According to Prabhudas Lilladher (PL Capital), this temporary blip is unlikely to derail the overall growth trajectory, with multiple macro and policy tailwinds expected to revive demand momentum in the second half of the year.
Short-Term Pressure from GST Expectations
The government is expected to table GST 2.0 reforms in the September 2025 Council meeting, rationalising the current four tax slabs into two core slabs of 5% and 18%, along with a 40% rate for luxury and sin goods. This has created short-term uncertainty for companies and consumers.
“We don’t rule out some postponement of purchases by consumers in anticipation of rate cuts under GST 2.0. This could weigh on reported numbers in the September quarter,” Prabhudas Lilladher said in its latest sector update.
The report also highlighted that demand in packaged foods, stationery, and economy footwear is particularly vulnerable, since these categories are likely to see GST rates reduced from 12% to 5%. Festive stocking, a key driver of Q2 consumption, may also see moderation. “Timely withdrawal of monsoons and clarity on GST slabs will be critical for trade stocking in paints and staples,” PL added.
Macro Tailwinds Point to Revival
Despite near-term softness, PL Capital remains optimistic on the medium-term outlook. The brokerage underlined several structural positives supporting consumption:
- CPI inflation has declined sharply to 1.6%, with food inflation turning negative.
- Income tax relief worth ₹1 trillion has increased household disposable incomes.
- The Reserve Bank of India has delivered a 100-basis-point rate cut in CY25, improving affordability.
- A normal monsoon is aiding rural recovery.
- GST reforms are expected to reduce tax incidence on essential consumer goods.
“GST cuts, transmission of interest rate reductions, and a normal monsoon are expected to keep momentum going post-Diwali,” the report said.
Sectors and Companies That Could Gain
Everyday consumer goods and packaged food categories are likely to see the maximum benefits as tax slabs are rationalised. Around 99% of items currently under the 12% slab are expected to move into the 5% bracket.
“We expect GST rate cuts to benefit companies in processed foods, stationery and the economy footwear segment,” PL noted. Beneficiaries could include ITC, Britannia, Hindustan Unilever, Nestle, and Dabur.
For ITC, a lower GST on paperboards and processed foods could help offset pressure from a higher tax on cigarettes. Britannia is expected to gain from its biscuits and bakery portfolio, while Titan may see stronger festive jewellery demand supported by higher disposable incomes.
Outlook and Stock Recommendations
We expects a gradual improvement in volumes and margins in FY26, aided by benign input costs and the impact of price hikes taken in earlier quarters. “While Q2FY26 may see an optical disruption, we expect a strong recovery in the second half of the year as GST cuts and festive demand kick in,” it said.
We remain constructive on the consumer sector and sees scope for stock re-rating as earnings visibility improves. Its top picks are ITC, Britannia Industries, and Titan Company, with calibrated gains also expected in Hindustan Unilever, Marico, and Jubilant FoodWorks.
The Bottom Line
While GST-related deferments may cause a temporary slowdown in Q2FY26, the combination of tax rationalisation, lower inflation, and improved disposable incomes is set to provide a powerful boost to India’s consumer sector. As PL Capital concluded, “Overall demand will rise across segments as sentiment improves.”
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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.
