Daily Voice | GST rationalisation a key demand catalyst for consumption, price-sensitive sectors, says Green Portfolio's Divam Sharma

The equity markets have been in a consolidation phase, and the next moves will largely be dictated by a few critical triggers. Domestically, upcoming inflation data and the GST Council meeting decision will guide investor sentiment. Globally, the US Federal Reserve’s rate decision and the progress of India–US trade talks will be closely watched.

At this stage, we see an equal probability of the benchmark indices touching new record highs by December. Much will depend on how geopolitical developments unfold. While India is making significant strides in diversifying its economic and strategic positioning beyond dependence on the US, such transitions can have short-term economic implications.

That said, the most severe phase of India’s trade challenges with the US seems to be behind us. If there is even moderately positive progress on trade negotiations, the markets are likely to respond favourably. We are optimistic that India’s diplomatic engagement will help foster a more constructive relationship with the US, which in turn could support market sentiment as we head into the year-end.

Do you find it difficult for the Indian IT industry to outpace global peers, given the current single-digit growth trend? Does this indicate a cautious outlook on the sector?

In the short term, the outlook for the Indian IT industry does appear cautious. The sector is currently facing headwinds from slower global technology spending, rapid disruptions in deep tech, and geopolitical uncertainties, all of which are keeping growth in single digits.

However, it is important to note that Indian IT firms have consistently shown the ability to adapt to shifts in technology cycles. The industry is actively pivoting toward AI and other emerging technologies, positioning itself for the next wave of growth. At the same time, India is not just a provider of digital solutions but also a significant consumer of AI-driven services, which is expected to boost domestic demand for IT offerings.

Adding to this, sector valuations have now turned comfortable, suggesting limited downside risk. This, combined with improving adoption of new technology, indicates that we may be close to the bottom of the current cycle, and the medium-to-long-term trajectory remains constructive.

Will the GST rationalization be a structural reform or more of a one-time booster?

GST rationalization has the potential to be more than just a one-time booster — it could act as a key structural reform. The government’s consistent focus on improving the ease of doing business signals a long-term intent to simplify the tax framework and make it more growth-oriented.

Which sectors are best positioned to benefit from the GST rate rationalization, and how do you plan to play them?

GST rate rationalization is expected to serve as a significant demand catalyst, particularly for consumption-driven and price-sensitive sectors. The move should not only stimulate demand but also enhance margins and ease compliance challenges throughout the supply chain, benefiting businesses at multiple levels.

To capitalize on this theme, a balanced investment approach is advisable. This involves combining defensive exposure to FMCG sectors, known for their resilience and steady demand, with selective cyclical bets in autos and real estate, which stand to gain from improved affordability and consumer sentiment post-rationalization. This diversified strategy is likely to be the most effective way to leverage the opportunities arising from GST reform.

Do you see valuation challenges emerging in the BFSI sector?

Valuation challenges are likely to emerge in the BFSI sector in the near term. The sector faces potential risks from increasing defaults, which may be driven by technological disruptions and geopolitical uncertainties impacting various businesses. Additionally, certain industries could experience slowdowns or layoffs, further affecting asset quality.

Another factor weighing on valuations is the decline in foreign portfolio investor (FPI) inflows, which could keep market sentiment subdued and limit upward valuation momentum for the sector. Overall, these headwinds suggest a cautious stance on BFSI valuations until greater clarity emerges.

Have you taken significant exposure to the auto sector, considering it’s one of the key beneficiaries of the GST rate rationalization?

We have meaningful exposure to both the auto and auto ancillary sectors. Currently, valuations in this space appear comfortable, and we expect local consumption to sustain its growth in the near term.

While GST rate rationalization itself is not a primary factor driving our investment decisions, we do believe that the rationalization process will ultimately provide benefits to the auto sector by improving cost structures and demand dynamics.

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