Equity markets continued to gain on Wednesday, with the benchmark BSE Sensex gaining over 200 points and the NSE Nifty 50 index rising over 70 points. Since closing below 80,000 on August 8, the Sensex is once again closing in on the 82,000 levels, suggesting that the bulls are trying to regain control. The Nifty too has reclaimed the 25,000 level.
While global geopolitical tensions and the uncertainties around the US-imposed trade tariffs continue to weigh, a long-awaited credit ratings upgrade by Standard and Poor's, as well as the Centre’s plan for a big revamp of the Goods and Services Tax (GST) regime by Diwali, has boosted investor sentiments on the Dalal Street.
Maulik Patel, head of research at Equirus Securities, says while Indian equity markets are facing “cyclical headwinds,” there are “strong structural drivers.”
One major theme that analysts are bullish on currently is consumption-related. The consumer price index (CPI) inflation has fallen sharply, and with that, the Reserve Bank of India’s monetary policy committee has slashed the policy repo rate by 100 basis points so far in 2025. This was expected to boost consumption.
Now, adding to the euphoria is the Centre’s move to restructure GST, which will likely see a range of products in the 12 per cent and 28 per cent slab being moved to 5 per cent and 18 per cent slabs respectively and four key GST rates making way for only two main rates, apart from a special 40 per cent rate for sin goods and certain luxury items.
Pranjul Bhandari, chief economist, India and Indonesia, at HSBC, says this promises to bring two benefits.
“Immediate tax cuts could spur demand across products – food, beverages, consumer durables, autos, hotels, cement, building materials, etc. And over time, efficiency gains of moving to a simpler and more predictable tax regime with lower rates, could raise India’s potential GDP growth over time,” Bhandari said.
What’s important to note is that many of the details on the GST revamp and how it will eventually look are yet uncertain and therefore would need a close watch.
Equirus’ Patel is overweight on auto, capital market, cement, FMCG, infrastructure, internet platforms, NBFC (non-banking finance companies), and oil and gas sectors.
He is underweight on building materials, industrials, defence, real estate, textiles and logistics, pointing to stretched valuations in many of these sectors.
Recent trends indicate a clear turnaround in rural consumption, says Equirus’ Patel.
“Rural wages after years of stagnation or contraction, have been rising steadily since late 2024, with February-May 2025 showing the strongest year-on-year gains since 2018 (3.5 per cent rise in rural wages in May). This wage growth directly boosts rural disposable income,” he said.
Seshadri Sen, head of research at Emkay Global Financial Services, pointed out that on a broader level, first quarter (April-June) corporate earnings were weak, but things are unlikely to worsen significantly from here. He is expecting an earnings recovery in the second half of the current financial year, with consumption being a key “delta factor” from here on.
“We look through the weak Q1 and see the earnings trajectory changing from second half of FY26 as the consumption cycle accelerates. The GST reform is a long-term growth accelerator and we see it as a strong rerating trigger, as the long-term earnings positives, will take some time to seep through,” said Sen.
He feels earnings may have bottomed out and expects steady improvements in quarterly growth as well as forward forecasts from here.
Emkay has a Nifty target of 28,000 for September 2026—about 12 per cent upside from the current levels.
He says discretionary spends like automobile companies are the best way to play the expected consumption recovery. On the other hand, he is underweight on the financial sector and technology companies.
One key area that must be watched out for is on the tariff front. The US has imposed 50 per cent (25 plus 25) tariffs on imports from India as the administration says the country is fuelling the war in Ukraine by buying Russian oil. Will the elevated tariffs remain, is anybody’s guess, and could well be determined on how the conflict between Russia and Ukraine unfolds and if a peace deal is signed at some point.
The second round and indirect impact of the elevated tariffs on India could be meaningful if not more heartful, said HSBC’s Bhandari. The main non-exempted items that India sells to the US are jewellery, textiles and food items, and a lot of these companies are small and labour-intensive. So, any disruption there will impact jobs and in turn consumption. FDI inflows and corporate capex could also take a hit if India’s exporting potential comes into question, added Bhandari.
