Daily Voice: GST reform likely by September, set to lift sentiment and festive consumption, says Bay Capital CIO

Keyur Majmudar is the Managing Partner & CIO at Bay Capital Investments Advisors.

According to Keyur Majmudar, the Managing Partner & CIO at Bay Capital Investments Advisors, the GST reform will be finalised as early as September, well ahead of the festive season.

"This would provide a timely boost to sentiment and consumption," he said in an interview to Moneycontrol.

In the second half of the year, he is of the view that the market focus is likely to shift from headline tariff news to the impact of these reforms on domestic demand. "Ultimately, corporate earnings will have to materialise to ensure the market is able to head higher than where we are today," he said.

Do you expect the market to gain strong momentum from September onward as the additional 25% tariff came into effect, given that it was anticipated and largely priced in by the market? Will the focus then shift to GST reform and expected growth?

The broader market has been consolidating for the past one year. While near-term attention is on the tariff hike, policy measures. Policy makers have undertaken a series of steps including the GST simplification to bolster domestic consumption and boost growth.

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Keyur Majmudar

Managing Partner & CIO|Bay Capital Investments Advisors

In the second half of the year, focus is likely to shift from headline tariff news to the impact of these reforms on domestic demand. Ultimately, corporate earnings will have to materialise to ensure the market is able to head higher than where we are today.

Do you think the government will finalise the GST reform and implement it in September itself — well before Diwali?

Yes, It is expected that the GST reform will be finalised as early as September, well ahead of the festive season, which would provide a timely boost to sentiment and consumption.

Which sectors would you recommend for portfolio allocation once GST rationalisation is implemented?

We typically do not rotate portfolios purely on policy events. However, GST rationalisation is likely to benefit domestic demand-driven businesses, particularly in consumer staples and discretionary segments.

Beyond the immediate impact, the reform — along with earlier tax cuts — should improve household cash flows and affordability. Thus, with greater affordability, better household cash flows as a result of not just the GST rationalisation but also the tax cuts instituted earlier this year many consumer oriented sectors should benefit.

Do you believe that EMS, consumer discretionary, and cement are high-growth sectors?

Sectors aligned with domestic demand are likely to fare better, with several sub-segments of consumer discretionary positioned for growth. That said, valuations remain a critical factor. In certain areas, high growth expectations have already been priced in, which could lead to disappointment if earnings fail to keep pace with elevated assumptions.

Do you strongly believe that the RBI will maintain the status quo in 2025, having already done enough on the rate front — despite some room for a rate cut?

The RBI has shown that it will move as required to spur growth. While we do not try to predict the moves of the RBI, it is our belief that the central bank will not hesitate to act in order to spur domestic demand and to provide the relevant buffers to absorb the near term shocks from the imposition of tariffs. Apart from interest rates, the RBI can also utilise other tools and mechanisms such as credit easing measures and credit flow measures to ensure that the broader MSME ecosystem is given the relevant support and protection.

Do you foresee any risks to the banking sector? What are your expectations for loan growth this year?

Deposit growth and loan growth rates have converged over the last few quarters and it is anticipated that loan growth rates would be in the range that they are now (early teens growth). It appears that the worst of the risk from the MFI sector are behind us. That said, levels of household debt remain high.

Unsecured lending and MSME exposures will need to be keenly tracked. Unsecured lending and MSME could see some stress although this will be different from lender to lender. System wide, there is unlikely to be any significant shock to the banking sector. As highlighted, the RBI will stand ready to provide any support, as required.

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