Markets set for a slow & stead uphill trek

The equity market is likely to witness a gradual uptrend this week, aided by the GST rationalisation. The move is expected to stimulate consumer demand and support future corporate earnings, offering a strong tailwind alongside the upcoming festive season. However, gains could be capped by the impact of the recently imposed 50% US tariffs, which pose downside risks for export-oriented sectors. 

On the geo-political front, sentiments remain positive as PM Modi concluded his four-day visit to Japan and China, terming the SCO summit “productive”. Stronger trade alignment with Russia and China is expected to open multi-sector growth opportunities for India. Key macro data this week include Indian and US retail inflation, ECB interest rate decision and Japan’s Q2 GDP.

There has been a broad-based reduction in GST rates wherein the key sectoral beneficiaries include automobiles, consumer durables, staples, retail (apparels and footwear), cement, hotels, insurance among others. In addition, the second order benefits are expected for banks/NBFCs, logistics and quick commerce. 

Last week, Nifty 50 ended higher by 317 points at 24,741 (+1.3%), as stronger than expected Q1 GDP and approval of GST 2.0 reforms lifted market sentiments. The broader market indices outperformed, with Nifty Midcap100 and Nifty Smallcap100 up by 2.5% each. Amongst sectors, Nifty Metal was the top performer with gains of 5.9%, aided by China’s plans to cut steel production between 2025-26. The Nifty Auto index rose 5.5% as the sector emerged as one of the biggest beneficiaries of GST rationalization. In contrast, Nifty IT declined by 1.5% due to concerns over weaker than expected U.S. jobs data.

India’s real GDP growth came at 7.8% YoY in Q1FY26 (highest in five quarters) vs. 6.5% in 1QFY25. The upside surprise was driven by a sharp rebound in government spending, which grew 7.4% in the quarter compared to a contraction of 0.3% in the same quarter last year. Going ahead, India’s GDP growth is projected to expand by around 6.4% in FY26, broadly in line with the RBI’s forecast. A favourable monsoon is expected to support rural demand. High-frequency indicators such as strong PMIs (manufacturing and services) and robust GST collections already point to a healthy uptick in economic activity. With such a positive surprise in real GDP numbers, we believe that a rate cut is unlikely in FY26.

With ITC no longer available, the pass-through of the 0% GST on health and life insurances may not be complete. Also, even if the insurance companies do not pass on the entire cut, we still see a meaningful reduction in premiums for policyholders and prospective customers, which will help drive demand as affordability improves. We remain positive on the insurance space, with general insurance players likely to be key beneficiaries from the cut in GST rates on automobiles.

Overall, while external headwinds from global trade uncertainties and tariff hikes remain a key risk, the combination of a simplified GST framework, positive domestic macros, favourable monsoon outlook, and supportive geopolitical developments should underpin market momentum in the near term.

(The writer is Head of Research, Wealth Management, Motilal Oswal Financial Services Ltd)