Summary of this article
Nifty FMCG index rose up to 2.66 per cent, led by Britannia and Dabur
GST cuts made soaps, shampoos, ghee, namkeens and UHT milk cheaper
Cigarette makers gained up to 3 per cent after overall tax burden reduced
Experts say rally is sentiment-driven and depends on earnings growth ahead
Several stocks in the fast-moving consumer goods (FMCG) sector rallied on September 4, 2025 after the Goods and Services Tax (GST) Council announced major tax cuts on a wide variety of daily essentials. Items such as soaps, shampoos, toothpaste, namkeens, ghee, and hair oil among other daily essentials have been moved to the lower 5 per cent slab.
Nifty FMCG index, which tracks the 15 most liquid and valuable FMCG companies, rose up to 2.66 per cent during the early session.
Leading the rally, biscuits-maker Britannia climbed up to 7.24 per cent, followed by Chyawanprash and honey-producer, which advanced as much as 6.16 per cent. Toothpaste-seller Colgate Palmolive rallied up to 5.12 per cent, and skin-care products-maker Emami jumped as high as 4.59 per cent.
Index heavyweights Hindustan Unilever Ltd (HUL), and ITC Ltd, which together constitute 52.41 per cent weight in the FMCG index, rallied as much as 3.20 per cent and 3.7 per cent, respectively.
Other FMCG stocks such as Nestle India, Marico, United Breweries Ltd also rose between 2 and 3 per cent each.
However, not all FMCG stocks rallied. Tata Consumer Products, Godrej Consumer Products, United Spirits, Radico Khaitan, Varun Beverages, and Patanjali declined.
GST Reforms: Which FMCG Items Will Get Cheaper
GST on personal care essentials including hair oil, shampoo, toothpaste, toilet soaps, toothbrushes and shaving cream will now fall under the 5 per cent slab, instead of the 18 per cent slab earlier.
Packaged food and household items such as butter, ghee, cheese, dairy spreads, namkeens, bhujia, and mixtures will now attract 5 per cent GST instead of 12 per cent.
Ultra-high temperature (UHT) milk, paneer and Indian breads like roti and paratha will now be tax-free, down from the earlier 5 per cent GST.
Sin Good FMCG Stocks Decline
However, not all FMCG stocks rallied. From the Nifty 50 index, Tata Consumer Products, Godrej Consumer Products, United Spirits, Radico Khaitan, Varun Beverages, and Patanjali declined.
Varun Beverages, the primary bottler of PepsiCo’s carbonated drinks in India, fell up to 3 per cent, as under the reformed GST norms, sugary and flavoured beverages, including aerated waters with added sugar, will now attract a 40 per cent GST, up from the previous 28 per cent bracket.
The fall in Tata Consumer Products shares, which dipped up to 2.91 per cent, can be attributed the GST hike in caffeinated drinks to 40 per cent. The company generates considerable share of revenue from its beverages segment.
Though alcohol remains outside GST's ambit and continues to be taxed under state excise duties, shares of Radico Khaitan and United Spirits slipped 2.85 per cent and 1.84 per cent, respectively. The decline can be largely attributed to sentiment-led selling.
Cigarette Stocks Gain
Even though cigarettes and other tobacco products were moved to the higher 40 per cent tax slab from 28 per cent, stocks like Godfrey Phillips, VST Industries, and Indian Wood Products rallied between 1 per cent and 3 per cent.
Earlier, cigarettes attracted 28 per cent GST along with a compensation cess and other duties, which took the effective tax burden to nearly 50-55 per cent. Under the revised structure, a flat 40 per cent tax without additional cess will reduce the overall tax burden.
Is The FMCG Rally Sustainable
The sharp rally in FMCG stocks after the GST rate cuts has been driven by expectations of stronger consumption and margin gains. According to Manasvi Garg, Sebi-registered investment advisor, CFA, and founder and CEO of Moneyvesta, the rally was “largely sentiment-driven, backed by hopes of stronger consumption and margin gains.”
He said that in the near term, momentum could continue with the festive season approaching, which typically boosts demand. Lower prices on everyday essentials may also revive consumption in rural and semi-urban markets that had been under pressure earlier this year, he added.
However, Garg cautioned that the real test will come in the following quarters. "For this rally to evolve into a durable trend, companies must show genuine volume growth and earnings improvement. Valuations are already elevated, so unless profits rise meaningfully, the upside could remain limited. If firms pass on tax benefits effectively and demand revives across categories, this reform could become a medium-term structural positive. Otherwise, the move risks settling into a short-lived bounce," he said.
What Should Retail Investors Do
According to Garg, retail investors should take a measured approach rather than rushing to chase the rally. He suggested “accumulating quality names gradually during periods of profit-booking,” instead of entering at peak levels.
Garg added that the biggest beneficiaries of the GST cuts are likely to be companies with higher exposure to packaged foods, personal care and oral care, as these segments see the sharpest rate reductions. Investors, he recommended, should focus on such firms when building positions.
