GST new rates: PGIM India MF sees rate rationalisation as big boost for consumption-driven sectors

PGIM India Mutual Fund has said its portfolios are well-positioned to benefit from the recent sweeping GST rate reductions, which the fund house describes as a “$20bn+ pro-consumption and fiscally manageable” reform. In a note titled, The $20bn+ GST cut – Pro Consumption, Fiscally Manageable, PGIM highlighted that its exposure to consumer durables, healthcare, and retailing is likely to gain significantly from this policy shift.

The note underlined that the GST rationalisation marks more than just a rate cut. It represents a long-term strategy aimed at enhancing affordability, simplifying the tax structure, and stimulating consumption-led growth. The transition to a simpler two-slab system—5% for essentials and 18% for most other goods and services, along with a 40% rate for luxury and sin goods—has been welcomed by industry and investors alike.

PGIM India MF said that the reform aligns with other supportive measures such as recent income tax reductions and the pruning of non-productive financial activities. Together, these steps are expected to raise disposable incomes and strengthen demand across key sectors of the economy.

According to PGIM’s analysis, sectors poised to see strong tailwinds include both staples and discretionary consumption—ranging from household goods, packaged food, and personal care products to automobiles, consumer durables, and stationery. Cement and building materials are also seen as beneficiaries, as lower input costs and improved affordability boost construction activity.

The fund house’s portfolios currently hold overweight exposure to consumer durables, healthcare, and retailing, while also maintaining a positive stance on cement and autos. Healthcare, in particular, is expected to gain momentum with GST fully exempted on life and health insurance policies, and rates on medicines and medical devices lowered to 0–5%. These measures not only make healthcare more affordable but also expand access, potentially driving demand for services and products across the sector.

Consumer durables and automobiles are also expected to see a demand revival as lower GST rates ease price pressures. In addition, rate cuts on smaller cars, two-wheelers, and appliances are likely to accelerate sales volumes. For retailing, the broad-based tax relief on daily-use goods is expected to translate into higher discretionary spending. 

PGIM India Fund Sector Allocation (July 2025)

PGIM India MF noted that the reforms provide a strong structural fillip to the economy, even as the fiscal impact remains manageable. The government’s estimated revenue loss of ₹47,700 crore, or 0.13% of GDP, is expected to be partly offset by buoyancy gains from higher compliance and consumption growth.

“With our current positioning across consumption, healthcare, and cement, we believe our portfolios are well-placed to ride the pro-consumption wave set in motion by GST 2.0,” the note concluded.