8th Pay Commission: What Rs 3 lakh crore boost for government employees mean for stock market investors
Sectors like passenger vehicles, BFSI, consumer durables, real estate, FMCG and QSR would benefit, according to experts.
8th Pay Commission Payout
According to calculations done by Elara Securities, the pay commission will lead to Rs 3-3.15 lakh crore payout for both salaries and pensions, which is estimated to be 0.65-0.85% of projected FY27 GDP. This compares with 7th Pay Commission’s total cost at Rs 1.02 lakh crore, which is equivalent to 0.66% of FY17 GDP.”Considering an employee distribution of 60% in lower salary levels (Salary grade 1-5), 30% in mid-levels (Salary grade 6–10), and 10% in senior levels (Salary grade 11–18), we estimate an overall average monthly gross salary increase of Rs 30,000-40,000 per month and monthly gross increase in pensions of Rs 15,000-18,000,” Elara said.
The 7th Pay Commission (Jan’16-Dec’25) had implemented a modest salary hike of around 14% (lowest since 1970). Ambit expects the 8th Pay Commission to announce a hike of 30-34% for salaries & pensions (around 15.5% of total expenditure) to cover around 11 million beneficiaries to boost consumption.
Also Read | 8th Pay Commission: What could be the expected salary hike, fitment factor, and implementation date?
Stock Market Set for Double Boost
With the Unified Pension Scheme implemented from FY26, the government’s contribution to pension fund (as % of employee salary) has increased to 18.5% from 14% earlier under NPS.
“Of this, 8.5% is under the government’s discretion as to where to park the fund. If it decides to follow global norms of parking around 45% in equities, flow into equity markets could increase from around Rs 245 billion to around Rs 465 billion (around 7.7% of net domestic flows in FY25),” Ambit Capital said.
A simple back-of-the-envelope calculation suggests government and central government employees’ contributions under the NPS would be Rs 1.2 trillion in FY26, of which Rs 182 billion would go into equities (assumed at around 15%, in line with default pattern under NPS scheme for Central government employees), it said.
Under the UPS, about 20% of the salary would be under employee discretion as opposed to the entire 24% under the NPS. If the government invests 45% (per global average) of the remaining 8.5% that it contributes under the UPS in equities, the overall flows to equities will nearly double.
Besides, additional money in the hands of government employees will either go to savings or consumption. A higher quantum of savings means more inflows into Dalal Street both directly as well as via the mutual fund route.
Higher salary will mean higher consumption and therefore as seen in previous pay commission implementation periods, traditional sectors like housing and auto will likely benefit. Evolving consumption trends suggest increased demand for services, particularly QSR, and BFSI sub-sectors like insurance and non-lending financials, analysts say.
As per historical trends, the passenger vehicles (PV) segment tends to benefit significantly during Pay Commission announcements. According to media reports, Maruti Suzuki witnessed a 31% year-on-year increase in sales to government employees once 7th Pay Commission was implemented in FY17. In FY09, after the 6th Pay recommendations (54% increase in purchasing power), government employees accounted for around 8% of Maruti’s vehicle sales in 4QFY09, from earlier 3.5%, Ambit said.
Similar trends were seen in the case of consumer durables, as growth was attributed to 7th Pay Commission payout. Company commentaries suggest that these are segments that have done well in the past, every time a Pay Commission rollout has happened, it said.
Analysts at Kotak Equities also agreed that select discretionary consumption and savings have been key beneficiaries in past pay revisions.
“Based on our estimate of Rs 2.4-3.2 lakh crore of additional income accrued by the central government employees, we expect an incremental Rs1-1.5 lakh crore of savings to be created, which may incrementally flow into a mix of physical savings, deposits and shares and debentures segment,” the brokerage said.
