India Stocks to Watch as Tariff-Driven Tax Reform Spurs Spending

We should be watching Indian consumer plays in the next few weeks, as the country unveils changes to its cumbersome sales tax that are designed to spur spending.

India’s finance ministry announced the changes after 10 p.m. Wednesday local time, with these “next-generation” reforms of the Goods and Services Tax (GST) due to go into effect as of September 22.

There’s a Ministry of Finance rundown of the main changes here, and I’ll explore them later in this story. The sales-tax council that has approved the reforms intends to “focus on improving the lives of all citizens and ensuring ease of doing business for all, including small traders and businessmen.”

A Long-Term Boon

The government flagged these changes last month. So Indian equities are little changed on Thursday, with the Nifty 50 basically flat at what’s technically a 0.1% gain, and the Sensex up 0.2%. But this is a long-term play that’s very good news for consumers and investors alike.

Readers of my recent stories on India such as @BasBis have highlighted the GST changes as presenting potential opportunity. That’s true, even as India faces up to a 50% punitive tariff on U.S. shipments that’s causing the country to look to improve once-frosty relations with regional rivals such as China and Russia.

Indian Prime Minister Narendra Modi clasped hands with both Russian President Vladimir Putin and Chinese President Xi Jinping, laughing together at a summit in Tianjin of the Shanghai Cooperation Organization (SCO).

The meeting, also attended by the leaders of countries such as Iran and Belarus, brought together virtually all the major countries that would like to challenge U.S. superpower status. The assembled leaders — dubbed a “circle of autocrats” by The New York Times — also watched a military parade on Wednesday in Beijing, with North Korean dictator Kim Jong Un joining Putin, Xi and Iranian President Masoud Pezeshkian. It’s the first time the leaders of those four nations have assembled in the same place.

China is keen to cement its own superpower role, celebrating this week’s 80^th anniversary of the “World Anti-Fascist War,” as I explained in my last column. It currently offers allies greater stability than demonstrated by U.S. foreign policy that can politely be called “erratic.”

The West, for instance, has spent years culturing alliances with India, forming bodies such as the “Quad” grouping of Asia democracies alongside the United States, Japan and Australia. But that hard work risks being undone. The world’s most-populous nation is now somehow being blamed by U.S. President Donald Trump for sustaining the war in Ukraine, a conflict 5,000 miles away, where it has played no part.

Trump has slapped a 25% punitive tariff on India for buying discounted Russian oil. On top of an existing 25% tariff, the 50% rate amounts to a near-embargo of Indian exports to the United States, bar goods such as pharmaceuticals and refined fuels that are exempt.

India Encourages “Make In India” Campaign

Modi, who pledged the need for sales-tax reform in his Independence Day address on August 15, delivered from the ramparts of New Delhi’s iconic Red Fort, is encouraging Indians to buy local in response. And the changes to the GST will encourage that.

Modi had promised to “reduce the tax burden across the country” by lowering GST by Diwali, the Festival of Lights. That falls on October 20 this year, so the finance ministry is well ahead of schedule in detailing the change.

The reform will convert what was a complex four-tier sales tax into a two-tier system, with a 5% “merit rate” for essential goods, and a “standard rate” of 18%. Actually there are three tiers, because there’s a “sin tax” dubbed a “special de-merit rate” of 40%.

Tax-Free Food and Drugs

And there’s a fourth tier if you consider that some goods are now exempt from any sales tax: all Indian breads such as chapatti, roti and paratha; packaged paneer; UHT milk; and both life and health insurance. A total of 36 “lifesaving” medicines are also exempt of sales tax, with all other drugs and medicines now taxed at 5%.

A whole raft of household goods now qualify for the 5% tax, down from the previous rates of either 12% or 18%. Now taxed at 5%: almost all other food items, soap, shampoo, toothbrushes and toothpaste, kitchenware, tableware, other household items, and also bicycles.

The 5% rate also covers basic medical, surgical, dental and veterinary machines, and medical supplies. It extends to fertilizers, manmade fibers and yarns, renewable energy systems and supplies.

Health Club and Hotel Costs Down

On the services front, the 5% rate also covers hotel stays that cost 7,500 rupees ($85) or less per day; gym and yoga memberships; beauty salons; and barbers.

Now qualifying for a rate of 18%, down from 28%: televisions, dishwashers, air conditioners, motorcycles below 350 cc, and small cars. The 18% rate also covers three-wheel vehicles, farm vehicles, buses, trucks, ambulances and all car parts.

Larger-capacity motorbikes and cars will be taxed at a standard 40%. But that’s also a reduction from a rate than ran as high as 50%.

In one of the rare increases in sales tax, clothing items that cost more than 2,500 rupees ($28) will see their tax increase from 12% to 18%. That could hurt foreign brands making inroads into India. But clothing that costs less than $28 is taxed at 5%.

The 40% “sin tax” covers luxury items such as yachts, private planes and as noted, large-engine cars. It also extends to guns, tobacco goods and fizzy drinks such as soda.

The full rundown is below the release on this page.

Stocks to Watch

For consumer goods, we can watch stocks such as Hindustan Unilever (NSE:HINDUUNILVR) and Procter & Gamble Hygiene & Health Care (NSE:PGHH) for response. The former is notching a 14.8% rise so far this year, outstripping the scant 2.8% gain for the Sensex in 2025. The Procter & Gamble PG India subsidiary has struggled, down 7.7% in 2025, although the shares have recently ticked higher, posting a 3.5% rise since August 28.

Food-essentials maker Nestle India (NSE:NESTLEIND) is up 11.7% so far this year, almost all of the gain coming after Modi made mention of the sales tax reforms in mid-August. It's the local business of Nestle NSRGY. 

The conglomerate Godrej Industries (NSE:GODREJIND) manufacturers ingredients for food and fast-moving consumer goods, as well as farm feed and agriculture-oriented chemicals. It is little changed this year, up 3.0%, but like many of these sales-tax stocks has rallied since mid-August, up 9.9% since then.

On the vehicle side, we can track the likes of small-car specialist Maruti Suzuki India (NSE:MARUTI), which shot up as soon as Modi mentioned sales-tax reform in mid-August. The shares are now up 31.0% so far this year.

Automotive conglomerate Mahindra & Mahindra MAHDY (NSE:M&M) is up a more measured 12.9% in 2025, making an 8.8% move higher since August 29.

Tata Motors TTM (NSE:TATAMOTORS) owns the likes of Jaguar Land Rover in Britain and Daewoo in South Korea. But it also makes pretty much the full range of vehicles within India, from compact cars to delivery vans, trucks and buses. Its shares are suffering to the tune of an 8.2% loss so far in 2025, with its global shipments hurt by trade disruption and tariffs. But it has edged 3.5% higher since Modi’s speech at the Red Fort.

India Consumer ETF Call

My original call for 2025 was that an India-focused exchange-traded fund (ETF) would be the best call if Indian equities formed a bottom. But I revised that call in February because Indian stocks weren’t finding that floor, and Chinese tech plays were moving higher.

Those trends haven’t changed. Alibaba Group Holding BABA (HK:9988) just leapt 18% in a day thanks to its investment into artificial intelligence, and is up 62.3% so far this year. But with the India sales-tax revision, smart ETFs such as the VanEck India Growth Leaders ETF GLIN and the Columbia India Consumer ETF INCO are now well-poised going into the end of the year, and on into 2026.