GST Cuts, Fed Rate Action Spark Market Optimism: Alok Agarwal
Recent fiscal measures and global economic signals are creating conditions for a potential market rebound in India, according to Alok Agarwal. Reflecting on previous advice to capitalize on market dips, Agarwal noted that investors who adopted this strategy are currently experiencing positive results.
“A lot has happened in the last few weeks and months,” Agarwal stated, “and specifically, the growth challenges India was facing have been handled quite well, especially with the GST rate cuts.” He believes the combination of earlier direct tax cuts this year, coupled with recent reductions in the Goods and Services Tax (GST), will significantly boost consumption.
However, Agarwal identified the ongoing India-US trade negotiations as the “only major issue” currently impacting market sentiment. he anticipates a positive impact across multiple fronts once a resolution is reached. “Once that deal goes through and the 50% tariff comes down significantly, that would be positive on the trade side, the currency side, and more importantly on the flow side as well,” he explained.
FII Return Anticipated Following Fed Rate Trim
Foreign Institutional Investors (FIIs) are expected to return to the Indian market after a period of net outflows. This expectation is bolstered by the U.S. Federal Reserve’s recent decision to trim rates by 25 basis points.While FIIs have withdrawn approximately $20 billion from India this year, domestic institutional investors have offset this with over $60 billion in inflows, providing market support.
Agarwal highlighted that India’s underperformance relative to global benchmarks is already reflected in current valuations. “in the last one year, India has underperformed the emerging market index by over 30% and the MSCI world index by over 25%. This kind of one-year underperformance we have not seen in the last 15-20 years,” he said.
He pointed to a positive shift in fundamentals, citing a 10% earnings growth for the Nifty 500 during the first quarter. Moreover, India’s valuation premium compared to global markets has decreased to 9%, down from a long-term average of 15%.”We do expect the FII numbers also to come back. The shot in the arm would be as and when we get that trade deal done,” Agarwal emphasized.
Emerging Sectors Offer Growth Potential
Agarwal observed limited growth potential in traditional index heavyweights – oil and gas, IT, FMCG, and banking – even though banking may see enhancement with renewed credit and deposit growth.
He believes the most significant opportunities lie in emerging sectors, including consumer discretionary (driven by retail and autos), internet and platform-based companies, consumer discretionary services, capital markets, travel, fertilisers, chemicals, and within the industrial space, defense and power.
As India navigates global uncertainties and awaits progress in trade negotiations, the combination of tax reforms, the Federal Reserve’s easing of monetary policy, and improving earnings are fostering renewed investor confidence in the market’s resilience.