Daily Voice: LGT Wealth CIO sees fresh market rally if these 3 sectors show earnings strength

The recent GST rationalisation is crucial as it signals the next wave of reforms. This change in rates should provide some insulation against global challenges, including shocks emanating from US tariffs. Meanwhile, the GST rate rationalisation is a step towards overdue factor market reforms.

For investors, the government's focus on simplifying the GST structure reflects a positive policy strategy. Additionally, this change signifies regulatory stability, which is crucial for both domestic and foreign investors. Overall, this move marks the start of broader economic reforms.

Do you anticipate a strong bull run in the consumption space, especially in light of recent interest rate cuts, tax relief measures, and GST reforms?

Consumption is a key driver of India's growth, fueled by lower borrowing costs, increased disposable income, and a streamlined GST regime. These factors are expected to boost consumption and investment momentum, though a full bull run may take time.

We view consumption as a structural theme, diversifying across both premium and affordable segments. This theme enables investors to generate long-term wealth without excessive exposure to volatile markets. Post-GST reform, there is also an opportunity to expand into mass-market categories.

Which sector, in your view, stands to benefit the most from the GST reform?

The GST tax slab rationalisation into two primary slabs—5% and 18%—along with a 40% tax on luxury and tobacco products, aims to balance affordability and fiscal prudence. This change would benefit several sectors in improved business volumes and overall consumption trends:

FMCG & Consumer Durables: The reform has directly reduced the tax burden on everyday items such as soaps, packaged foods, toothpaste, and personal care products, making them more affordable and stimulating demand.

Automobiles & Auto Components: The reduction in GST rates for small cars, two-wheelers, and auto components simplifies classification and reduces taxes and duties to a uniform rate of 18%. This rate rationalisation would reduce the cost of ownership for consumers and improve supply-chain efficiency for manufacturers.

Cement & Building Materials: The tax rate reduction from 28% to 18% for cement reduces the construction costs, thereby improving affordability for residential home buyers and also lowering infrastructure project costs. This shift augurs well for both the real estate market and broader economic activity.

Insurance (Life & Health): Life and health insurance policies for individuals are now exempt from GST, which makes these protection products more attractive and boosts accessibility as well as distribution economics.

Real Estate & Housing: The reduction in GST on essential inputs, such as tiles, paints, and fittings, lowers residential construction costs. This directly enhances homebuyer affordability and improves margins for developers.

How do you interpret the implications of GST reform for the NBFC and insurance sectors?

For NBFCs, smoother credit reconciliation and compliance efficiencies reduce costs and improve scalability. When combined with falling funding costs, it opens the door to deeper penetration in the consumer and MSME segments. The long-term opportunity is to integrate GST data itself into underwriting models—transforming how credit risk is assessed for small businesses.

Insurance remains a core portfolio allocation. Reforms that improve distribution efficiency strengthen the long-duration growth story. GST clarity around input services lowers frictional costs, but the real impact is in distribution efficiency. This enables insurers to reinvest in product innovation and deepen penetration, which remains relatively low in the Indian market.

Are the commodities and cement sectors currently in a sweet spot?

Cement is structurally well-positioned. Positive factors include strong demand visibility driven by infrastructure and housing projects, decreasing energy costs, and industry consolidation. In terms of portfolio management, cement serves as a cyclical allocation with good earnings visibility.

In contrast, commodities are more tactical investments. Global economic cycles, inventory trends, and currency fluctuations heavily influence them. However, at this time, cement represents a more compelling opportunity for long-term wealth accumulation, given the potential increase in demand resulting from the reduction in the GST rate.

Do you expect the chemical sector to begin its upward trajectory soon?

Chemicals industry is driven by structural trends, ensuring its continued relevance beyond the current slowdown. The sector is approaching an inflexion point, with global destocking largely behind us, making India a preferred "China-plus-one" supplier.

The recovery is likely to be uneven in the broader chemicals space. In contrast, speciality chemicals and niche segments are expected to recover sooner, and bulk chemicals will face a slower rebound due to overcapacity.

Do you foresee markets consolidating for the remainder of 2025, with a potential new leg of the uptrend emerging after the December quarter earnings season?

We anticipate a period of range-bound consolidation accompanied by sector rotation. After a strong rally, valuations in certain pockets of the market have outpaced earnings growth. Consolidation should not be seen as a pause; instead, it presents an opportunity to reset portfolios and accumulate quality assets at more attractive valuations.

The earnings season for the December quarter will be crucial. If companies demonstrate resilience in margins and strength in their order books—especially in sectors like financials, industrials, and building materials—we could witness a new phase of upward momentum. For wealth clients, it is essential to remain invested, take advantage of dips to rebalance, and avoid concentration in specific bets.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.