GST boost to lift consumer stocks; Elara's Karan Taurani favours Nykaa, Trent, United Spirits

Discretionary consumption could see a stronger October-December quarter of 2026 (Q3FY27) as the benefit of last year's goods and services tax (GST) cuts starts reaching smaller categories such as apparel, footwear and food, according to Karan Taurani, Executive Vice President at Elara Capital.

Taurani said the GST-led consumption boost initially benefited categories such as automobiles and white goods, where consumer savings were higher. However, he expects the impact to reach other discretionary categories with a lag. With the festive season shifting towards the third quarter, he expects the October-December quarter of 2026 (Q3FY27) growth to be better than the July-September quarter of 2026 (Q2FY27) for most companies in the segment.

"The GST cut has happened invariably in some of most of these categories, but it's going to follow up with a lag, and that is exactly what is happening right now," Taurani said.

Within the broader discretionary space, Taurani remains positive on platform-led companies, citing their stronger growth prospects and the continued shift towards online shopping. He named Nykaa and Eternal among his top picks.

However, stronger demand does not necessarily mean a similar improvement in earnings, as rising input costs are emerging as a key concern. In apparel, fabric costs have increased 15-20%, while companies may find it difficult to raise prices significantly because fast fashion remains highly price-sensitive.

Taurani also expects food inflation to become an overhang for quick-service restaurant (QSR) and food-and-beverage companies in the third quarter. Higher maize prices have pushed up cattle feed costs, which could eventually increase the cost of protein, milk and other food inputs.

In the alcohol segment, he sees spirits as better placed than beer because of lower exposure to glass costs, along with premiumisation trends and the opening up of new markets. He sees United Spirits, Tilaknagar Industries and Allied Blenders and Distillers as better near-term plays. However, he expects Radico Khaitan to face some margin pressure from higher maize prices.

"Inflationary pressures are going to keep earnings growth under check for most of these companies," Taurani said.

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Taurani also remains positive on Trent over the medium term, despite expecting some near-term margin pressure. He believes competition in the fast-fashion market is easing, with fewer players expanding as aggressively as they were a year and a half ago.

He expects Trent's growth trajectory to improve over the next couple of quarters once raw material inflation cools, making the company a more attractive medium-term bet.

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