Markets cheered the surprise prompt delivery. Nifty opened 1% higher following the announcement. But as the fine print surfaced, the exuberance gave way to scepticism in some counters. Apparel and footwear were among the sectors where GST 2.0 propped up some stocks while dragging down others. Let’s explore.
What transpired in apparel?
Along with many mass-consumption items, apparel meant for the masses has been placed under the 5% bracket. To be sure, apparel under ₹1,000 was already taxed at 5%, while costlier apparel came under the 12% slab.
Synthetic or man-made fibres and fabrics used to be in the 18% slab. Now, under GST 2.0, no such classifications (read: complications) exist on the type of fabric. Instead, the categories are split out solely on prices. Apparel under ₹2,500 (higher than the previous threshold) has been classified as luxury goods, to be taxed at 18%—up from 12% previously.
So, while apparel costing between ₹1,000 and ₹2,500 will now be taxed at 5% instead of 12%, those costing more than ₹2,500 will attract higher GST. In other words, mass apparel consumption has been subsidised at the cost of premium consumption.
One sector, diverging reactions
On cue, stocks within the apparel sector have shown diverse reactions. Businesses primarily catering to value fashion, such as Trent and Aditya Birla Fashion and Retail (ABFRL), soared. But companies like Aditya Birla Lifestyle Brands and Vedant Fashion, which deal primarily in premium fashion, saw steep corrections in their shares.
While Aditya Birla Lifestyle Brands corrected by 0.7%, ABFRL appreciated by 1.8%.
The one story that sticks out is Aditya Birla’s fashion business. Aditya Birla Lifestyle Brands had recently demerged from ABFRL to allow the former to focus specifically on lifestyle brands like Louis Philippe and Van Heusen, thus unlocking value for shareholders.
Thanks to this demerger, investors could have their pick following the GST 2.0 announcement.
Similarly, Trent has two kinds of fashion stores—Zudio for younger and price-conscious buyers, and Westside for urban buyers who don’t mind paying a premium for quality apparel. While Westside is how Trent had kicked off its fashion portfolio, Zudio has grown exponentially faster.
In fact, Trent’s phenomenal growth in recent years is attributed to a blistering 42% CAGR growth in Zudio store expansion (vs 9% CAGR for Westside) between March 2021 and March 2025.
On the other end of the spectrum, we have Vedant Fashion. Known for premium ethnic wear brands including Manyavar, most of Vedant Fashion’s sales come under the above ₹2,500 category, which will now attract an 18% GST instead of 12%. The stock corrected by almost 2% following the announcement of the new rates.
Footwear – Affordable brands lead
Something similar transpired in footwear as well. Footwear priced lower than ₹2,500 will now fall under the 5% bracket. Those under ₹1,000 are currently taxed at 12%, while those between ₹1,000 and ₹2,500 attract 18% tax. Those costing more than ₹2,500 will continue under the 18% bracket. In other words, the more affordable the footwear, the sharper the GST cut on it.
Bata India has been the biggest beneficiary, with its stock rallying by more than 7% in a day. To be sure, the affordable footwear company has been struggling for the last couple of years. According to Ambit Capital, its product innovation has failed to keep up with evolving customer preferences, and its store staff are under-incentivised. Following stagnant revenues since FY23, investors have pinned their hopes of a recovery on the GST cut.
Metro Brands, which has a presence across the entire price range, also saw a 5% rally following the GST 2.0 announcement. On the other hand, Campus Activewear, a sports and athleisure brand, corrected by 1%. The stock had appreciated by more than 6% since PM Modi’s Independence Day speech. But with premium footwear continued to be taxed at 18%, investors rolled back their optimism once the details were out.
When a lower GST does not solve all problems
While lower GST will increase the demand for affordable fashion and footwear, some such businesses are also struggling with structural challenges. Relaxo Footwear and V-Mart need much more than a tax-driven demand push.
According to Ambit Capital, Relaxo has been losing market share to regional unlisted players, thanks to weak innovation and widening price gaps. Their stagnant revenues over the last few years have left investors wanting.
The GST cut would only reduce Relaxo’s price gap over regional players, while the company needs to examine its issues in depth. The stock corrected by 0.2% following the announcement of the new GST rates.
In apparel, it’s a similar story for V-Mart. With value fashion brands like “desi mix” and “Be Princess,” V-Mart has been struggling under the weight of acquisitions. Unlimited was acquired from Arvind Fashion in FY21 and took years to integrate into V-Mart’s presence in tier-2 and tier-3 cities.
Similarly, Limeroad acquired in FY23 was meant to further V-Mart’s digital dreams. But its losses have been a drag. V-Mart appreciated by a muted 0.2% following the GST 2.0 announcement.
Even V2 Retail had been struggling under aggressive acquisition bets of the past, high competition, and rising costs. It turned around into profitability only in FY24. The stock ran up by a massive 300% in response, and did not have much valuation room left to respond following the GST cut. The companies have fared better in FY25.
Bottom line
If we look at the performance of apparel and footwear since the GST 2.0 was announced by PM Modi on Independence Day, the response has been positive. Barring a few stocks like V2 Retail and V-Mart, which were weighed down by expensive valuations and structural issues, these sectors have celebrated the domestic demand push against the gloomy context of global policy uncertainty.
Compared to Nifty 50 index, which has been flat since the 15 August announcement, stocks like Trent and Bata have appreciated between 3% and 18%.
Once the details were released this week, stocks like Vedant Fashion (Manyavar) have shown a knee-jerk reaction to the lack of a GST benefit for premium categories. But it is important to note that premium demand has remained relatively resilient amid the patchy domestic demand environment.
Affordable categories, on the other hand, have struggled with intensifying competition and rising costs. The GST reforms have been exactly what the doctor prescribed for such businesses.
Finally, the GST categories based on natural and synthetic fibres, fabric, and footwear use cases have been eliminated. With GST slabs now determined solely on prices, the tax structure has been significantly simplified. This, along with faster and automated GST registrations and refunds, will go a long way in furthering the ease of doing business.
For more such analyses, read Profit Pulse.
Ananya Roy is the founder of Credibull Capital, a Sebi-registered investment adviser.
Disclosure: The author holds shares of some of the companies discussed. The views expressed are for informational purposes only and should not be considered investment advice. Readers are encouraged to conduct their own research and consult a financial professional before making any investment decisions.
