Moneycontrol Pro Panorama | Festive cheer, resilient economy, but reluctant markets

The government is betting on sustained domestic consumption through the year, to build momentum in private sector capital expenditure that is still sluggish.

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Far from being worried about global adversities, the Reserve Bank of India (RBI)’s September bulletin, albeit a monthly ritual, reads overly optimistic about the country’s growth. There is a clear message that the second half of FY2026 will display not just a resilient India amid trade tensions and tariffs wars (as stated in earlier reports), but a strong recovery in the pace of domestic manufacturing, services and overall growth.

In the spotlight is consumption. That the government’s goods and services tax (GST) 2.0 reforms could see the desired impact in driving domestic consumption, can hardly be debated. A timely shot in the arm, the effect is already seen in heightened consumption activity in discretionary products.

Auto dealers are gung-ho with phenomenal festive footfalls, enquiries and sales for entry-level two-wheelers (2W) and cars. Maruti, Hyundai and Tata Motors reported highest-ever sales on the first day of Navratri. Similar tailwinds of GST rate cuts from 28 percent to 18 percent are seen in white goods where retailers state significant rise in purchase of air conditioners, dishwashers and TV sets.

In addition to higher sales after dwindling growth rates, what’s material for original equipment manufacturers(OEMs) is the trend of customers upgrading products. This would translate into better revenue mix, higher realisations and profitability for OEMs.

To be sure, the government is betting on sustained domestic consumption through the year, to build momentum in private sector capital expenditure that is still sluggish. The report cites that the GST reforms come on the back of transmission of interest rate cuts, income tax relief and employment augmenting measures. The stage is set… “potentially for a virtuous cycle of higher investments and stronger growth impulses, overcoming persistent global uncertainties”.

Indeed, the festive season (third quarter) is usually good for domestic facing, consumption-oriented sectors. But this time round, the question is whether the festive spark ignited by a slew of reforms continue to brighten earnings prospects for India Inc. Importantly, will domestic resilience insulate the economy from shocks of US tariffs such as supply chain disruptions and fall in exports? The new H1-B visa regulations and higher fees, although impacting the services sector, are reckoned to impact dollar flows into the country.

Little wonder that investor sentiment is at a crossroads, divergent from consumer sentiment in spite of the ongoing government reforms. The RBI Bulletin and the initial festive season vibrancy have not helped drive up benchmark indices. Equity markets continue to yo-yo in a small range perhaps awaiting cues from the September quarter earnings and management commentary to mark upgrades/downgrades for the full year FY2026. Besides, the lack of clarity on US-India trade talks looms over investor sentiment, too.

However, early indications from brokerages about September quarter earnings are that the pace of earnings downgrades is reducing. If earnings are revised upwards, then the price-to-earnings ratio at current levels (about 20 times one year-forward) may warrant a re-rating. Indeed, liquidity surplus, underperformance to global indices and healthy corporate balance sheets could be additional tailwinds for equities.

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Vatsala Kamat
Moneycontrol Pro