Stock markets holding ground due to proposed GST revamp despite $60-bn tariff blow, says Chris Wood

The Indian equity markets have managed to withstand what could have been a much sharper downturn after the United States slapped steep tariffs on Indian goods. According to Christopher Wood, Global Head of Equity Strategy at Jefferies, the government’s move to consider recasting the goods and services tax (GST) by the end of September has been the crucial factor in cushioning the blow. In his widely followed investor note, GREED & Fear, Wood argued that without the promise of GST rationalisation, Indian markets might have faced a far deeper correction in recent weeks.

As part of his portfolio reshuffle, Wood removed Aditya Birla Real Estate from Jefferies’ India long-only equity portfolio and replaced it with Mahindra & Mahindra (M&M). This switch, he explained, reflects confidence in sectors that stand to benefit from consumption resilience and potential tax relief, even as other parts of the economy face tariff headwinds.

GST reform as a buffer

“The reason the Indian stock market has not reacted more negatively to the 50 per cent tariff threat, particularly consumption-related stocks, is the escalating policy response of the government,” Wood noted. He pointed out that income tax cuts announced in the February budget had already provided some stimulus. But the more significant and timely development has been the proposed rationalisation and simplification of GST, which markets view as a pro-growth reform capable of sustaining demand momentum.

The backdrop, however, remains grim. On August 27, the Trump administration went ahead with the threatened 50 per cent tariff on Indian exports to the US. Pharmaceuticals were largely spared, but other major export categories—textiles, footwear, jewellery, and gems—were hit. Jefferies estimates suggest the measures could cost India between $55 billion and $60 billion in lost output. These sectors are also labour-intensive, raising concerns of job losses in industries that employ millions.

Market performance and sectoral impact

Stock indices have reflected this mixed picture. The Nifty 50 fell 1 per cent in August 2025 amid tariff-related fears. Sectoral indices such as pharma, real estate, oil & gas, banking, and CPSEs underperformed, declining up to 5 per cent. On the other hand, optimism around GST cuts provided a boost to auto, consumption, and consumer durables stocks, with indices in these segments gaining as much as 6.5 per cent during the same period, according to ACE Equity data.

Political backdrop and policy tensions

Wood also highlighted the political dimension of the tariffs. Conversations in New Delhi, he wrote, made it clear that the decision was rooted in what he described as US President Donald Trump’s “personal pique.” Trump had reportedly been frustrated by India’s refusal to allow him to mediate in its longstanding conflict with Pakistan. The situation escalated after a brief four-day military clash in May, which followed the killing of 26 Indian tourists in Kashmir’s Pahalgam region in April. India has long rejected third-party involvement in its Pakistan policy, and Wood suggested that Trump saw this as a lost opportunity to pursue his ambition of winning a Nobel Peace Prize.

Adding fuel to the fire, Washington also imposed a punitive 25 per cent penalty linked to India’s continued purchase of Russian oil, despite earlier warnings. Wood called these measures “draconian,” arguing that they compounded an already fragile situation and came at a time when a trade deal between the two countries had been close to finalisation.

Slowing growth and risks ahead

The tariff shock is particularly troubling because it comes against the backdrop of slowing growth in India. Nominal GDP growth is expected to slow to 8 per cent year-on-year this quarter, well below the 10–12 per cent trend of recent years. One reason, Wood said, is record-low inflation: consumer price inflation was just 1.6 per cent in July, an eight-year low, while wholesale price inflation actually contracted by 0.6 per cent.

He suggested, however, that monetary easing and fiscal stimulus could lift nominal growth and corporate earnings next year. This outlook partly explains why domestic fund managers have shifted their focus toward consumption-driven companies instead of cyclical capex plays.

Still, the risks for small and medium-sized enterprises (SMEs) remain severe. “The 50 per cent tariffs are undoubtedly a potentially massive negative for SMEs in employment-intensive industries,” Wood warned, noting that prolonged stress could also spill over into microfinance and consumer finance sectors.

Resilient domestic flows

Despite these challenges, India retains a relative advantage over other large Asian markets like China and Indonesia, where nominal growth has also disappointed. Unlike those economies, India has not seen any significant pullback by retail investors. Instead, the culture of systematic investment through equity mutual funds remains deeply entrenched. Monthly Systematic Investment Plans (SIPs) continue to attract steady inflows, providing a cushion of liquidity to domestic markets.

“This culture of disciplined retail investing is here to stay for the foreseeable future,” Wood concluded, suggesting that it remains one of the structural strengths of the Indian equity market.