GST Cheer Meets Trade Tariff Heat

Domestic markets have been nothing short of a roller coaster over the past fortnight. The first week began on a high, with benchmark indices riding optimism after news surfaced about potential GST reforms. However, that optimism proved short-lived as sentiment soured in the following week, weighed down by the U.S. decision to hike tariffs on several Indian imports including textiles, gems & jewellery, and seafood being the most exposed.[EasyDNNnews:PaidContentStart]

The move, linked to India’s continued discounted purchases of Russian oil, dampened investor morale and erased the earlier rally. By the close of the fortnight, the BSE Sensex and Nifty 50 had shed nearly 1 per cent each, while the broader market mirrored the weakness. The BSE Mid-Cap Index slipped 0.75 per cent and the BSE Small-Cap Index declined 0.66 per cent, reflecting a wider cautionary mood.

Yet, the market narrative was not entirely grim. On the sectoral front, automobiles and FMCG stocks stole the spotlight, surging sharply on hopes of sweeping GST reductions. Proposals to slash GST on small petrol and diesel cars from 28 per cent to 18 per cent and on many consumer goods from 12 per cent (or higher) to 5 per cent sparked a wave of buying.

Analysts hailed the reforms as growthaccretive, pointing out that cheaper cars and essentials could unlock demand and cushion the near-term headwinds from muted earnings and external pressures. Conversely, heavy FPI outflows weighed on banking and power stocks. With the rupee weakening, financials came under stress, while capital-intensive sectors such as IT and power also bore the brunt of foreign selling. Adding to the drag, electricity demand in August fell sharply, largely due to above-normal rainfall that dampened industrial consumption.

The domestic market moved like a pendulum, lifted by optimism around GST reforms and upbeat GDP and IIP data, yet pulled back by tariff hikes and escalating trade tensions

Amid the market swings, the macroeconomic backdrop brought cheer. India’s GDP surged 7.8 per cent year-on-year in Q1FY26, handily beating market expectations of 6.7 per cent and even outpacing the RBI’s forecast of 6.5 per cent. The upside was powered by front-loaded government spending, benign inflation, and solid momentum across services, agriculture, construction, and manufacturing. The Index of Industrial Production (IIP) surged 3.5 per cent in July, the fastest in four months, up from 1.5 per cent in June.

Manufacturing led the rebound with 5.4 per cent growth, a sharp improvementover the previous month’s 3.7 per cent. Notably, while foreign institutional investors (FIIs) pulled out nearly ₹22,700 crore, domestic institutional investors (DIIs) stepped up strongly, infusing more than ₹39,000 crore. Their resilience provided much-needed balance, highlighting the growing clout of domestic flows in cushioning global volatility. Stay tuned for further updates!

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