According to V Srivatsa, Fund Manager (Equity) at UTI Asset Management Company, GST reform 2.0 is a game-changer that could boost demand prospects across a majority of consumption-oriented sectors.
However, he cautioned that "the immediate impact on the festive season would depend on a host of factors such as channel inventory, supply chain challenges, etc., and may not translate into higher growth in the ensuing season," he said in an interview with Moneycontrol.
As for the broader markets, Srivatsa highlighted key risks including global volatility, particularly tariff-related concerns, and the potential for a US recession, which could affect global capital flows into Indian markets.
"Our markets, despite the recent underperformance, still trade at a premium compared to other emerging markets," he added.
Do you believe Diwali has come early for several consumer-facing sectors, especially in light of GST Reform 2.0?
The proposed GST reform 2.0 is a game changer to boost the demand prospects for the majority of consumption oriented sectors. For a lot of basic consumption items such as food, personal products and even necessary discretionary items such as air conditioners, washing machines, etc., the GST rates were high at 18% or 28% which has been rationalised, making it more affordable and reducing the burden on the common man, which would boost the consumption in the long term.
However, the immediate impact on the festive season would depend on a host of factors such as channel inventory, supply chain challenge,s etc., and may not translate into higher growth in the ensuing season.
Do you see GST rationalisation as a strong and sustainable booster for the economy and earnings growth, particularly as India faces US tariff challenges?
In the domestic-oriented sectors, we see triggers for demand growth revival in the next two years, which would translate to higher earnings growth for a host of domestic sectors such as automobiles, white goods, and FMCG, and also boost the demand for services such as health insurance and term insurance.
However, the tariff, if the penalty tariff exists in the medium term, can impact the export-oriented sectors of textiles, gems and jewellery, and auto parts, and could have a larger impact on the ecosystem as this could put pressure on jobs and NPA in these sectors.
Would you advise reshuffling portfolios after the GST rate rationalisation? Which sectors are on your radar post this reform?
Since the GST reforms were announced in mid-August, most of the sectors, such as automobiles, FMCG, and consumer durables, have seen a run-up in anticipation of this development and near-term earnings upgrades may be limited as channel inventories could be high and there could be deferment of purchases, anticipating the fall in duties.
It is worth noting that the valuation ranges for sectors such as consumer durables, FMCG are in the upper end, even with muted growth in the last couple of years. Within the positively impacted sectors, we remain optimistic on automobiles and insurance as valuations remain reasonable and the long-term impact is decent.
Do you expect more such reforms aimed at supporting exporters in the near future?
In the near future, the government can consider giving incentives to sectors that have been worst impacted, like garmenting and gems, and jewellery. In specific sectors like textiles, there is a disadvantage as there were import duties on cotton imports, making Indian spinners less competitive.
While the government has waived off the duties till December 2025, this should be extended by a couple of years. In the medium term, the government should expedite free trade agreements (FTA) with the European Union and other countries to reduce dependence on the US.
Given the recent earnings growth, do you anticipate strong momentum in the cement sector going forward?
The cement sector is amongst the top performers in the last six months on the back of decent earnings upgrades and good earnings visibility. The sector is seeing consolidation with some of the smaller players getting acquired by the top two players in the last couple of years, which bodes well for the medium-term profitability. We expect decent momentum in the sector going forward.
Are you betting on new-age tech companies that delivered strong earnings last quarter?
The new age companies do not fit into my strategy framework, and at present, I don’t hold any new age stocks in my portfolio.
Do you believe the worst is behind us and that the market is ready to begin a new leg of its upward journey?
In the last couple of years, the earnings growth of the market was impacted by the consumption sectors such as automobiles, retail services, and consumer durables, which suffered due to tepid demand, especially on the rural side. With the host of measures that the government has taken in the last year, such as personal income tax cuts, boosting system liquidity, and GST reforms has addressed the demand issues of the consumption sector,s and we expect earnings of the consumption sectors to pick up.
However, the markets may see earnings growth challenges in IT and healthcare, which are dependent on the US for their earnings and growth. The big risks on the markets are global volatility, especially with the tariff-related risks and possible US recession risks, which could impact global flows into the Indian markets and our markets, in spite of the underperformance, still trade at a premium to other emerging markets. The markets are balanced with decent domestic earnings as the key positive trigger and global volatility is the key risk.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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