Which sectors will benefit most from the GST cuts? Anirudh Garg of INVasset PMS explains
Investors found limited opportunities over the past year, as the benchmark BSE Sensex slipped more than 2 per cent amid geopolitical tensions, persistent foreign fund outflows, and trade tariff concerns.
- Sep 4, 2025,
- Updated Sep 4, 2025 2:02 PM IST
Investors on Dalal Street found limited opportunities over the past year, as the benchmark BSE Sensex slipped more than 2% amid geopolitical tensions, persistent foreign fund outflows, and trade tariff concerns. So, how does the market look after the Goods and Services Tax (GST) Council on Wednesday approved a simplified dual-slab structure of 5% and 18%, scrapping the existing 12% and 28% rates?
Last week, the Indian economy also reported a robust 7.8% growth in gross domestic product (GDP) for Q1 FY26. In an interaction with Business Today, Anirudh Garg, Partner and Fund Manager, INVasset PMS, shared his views on the GST2.0, market outlook and Q1 GDP growth. He also said that market leadership has been rotating toward capital-intensive sectors, infrastructure, and financials, indicating a shift from defensive to growth-oriented positioning. Edited excerpts:
BT: How do you see GST2.0? Which sectors are likely to benefit the most?
Garg: The rationalisation into two primary slabs—5% and 18%—paired with a 40% sin tax on luxury and tobacco products, creates a framework that balances affordability with fiscal prudence.
Consumer-facing industries are immediate beneficiaries. Durable goods such as air conditioners, televisions, and dishwashers now attract 18% instead of 28%, easing costs for households and lifting demand prospects for manufacturers. The auto sector, especially entry-level cars and two-wheelers, also benefits from lower tax incidence, reinforcing a recovery in volumes.
FMCG staples including packaged food and personal care products now fall under the 5% bracket, creating price efficiencies that can widen consumption at the bottom of the pyramid. Insurance products—both health and life—have been exempted, giving insurers new levers to expand penetration in underserved segments. Renewable energy equipment gains from lower tax rates as well, reducing project costs and accelerating investment in the clean energy transition.
Interestingly, even the introduction of a higher sin tax can hold positive implications for companies in the tobacco and luxury segments. Demand in these categories tends to be relatively inelastic, meaning volumes are not significantly impacted by price hikes. As a result, firms can pass on the tax burden, sustain margins, and benefit from stronger revenue collections. Thus, while the reform discourages excess consumption, it simultaneously preserves industry profitability, creating a balanced outcome.
BT: What does the robust GDP growth of 7.8% in Q1FY26 mean for the equity markets going forward? Will the momentum sustain?
Garg: Equity markets are likely to interpret this growth as a confirmation of India’s structural strength rather than an anomaly caused by external factors such as tariffs. Although new US trade restrictions create short-term volatility, the domestic growth narrative remains consumption-led, supported by healthy credit growth, falling inflation, and an accommodative monetary stance. With household and corporate balance sheets in better shape than in previous cycles, the market’s medium-term outlook remains constructive.
Valuations, while elevated in some pockets, are justified by earnings visibility and record inflows from domestic mutual funds. The breadth of growth across sectors — from manufacturing to digital services — signals that India’s momentum is not a product of speculative positioning but rather of policy continuity and macroeconomic stability. As global investors rebalance exposure amid heightened trade tensions, India’s appeal as a relatively insulated, high-growth market should persist. Near-term volatility tied to tariff headlines could provide attractive entry points for long-term investors. The 7.8% growth rate reinforces the thesis of India being a structural outperformer, making any market dips more a buying opportunity than a cause for concern.
BT: How would you assess the Q1 earnings season? Which sectors have delivered strong performance?
Garg: The Q1 FY26 earnings season highlighted a nuanced picture of India’s corporate health, with overall net profit growth at roughly 8-8.5% year-on-year, despite challenging base effects and global demand softness. Revenue growth moderated to around 8-9%, reflecting cautious consumer sentiment and uneven export trends. Sectors linked to domestic infrastructure and consumption showed leadership, with capital goods and construction players benefitting from government-led spending and private sector order visibility. The banking and financial services sector remained resilient, supported by healthy credit growth, controlled non-performing assets, and a stable interest rate environment after the Reserve Bank of India’s policy easing. IT services companies posted modest revenue growth as global technology spending showed early signs of recovery, although pricing pressure persisted. Consumer staples and discretionary sectors witnessed margin improvement as raw material prices stabilized, leading to stronger-than-expected earnings rebound. Automobiles recorded robust volume growth driven by festive demand expectations, while energy and metals faced mixed results due to volatile commodity pricing. Overall, this quarter reinforced India’s earnings cycle as being firmly in an expansionary phase, with broad-based participation beyond traditional sectors. Earnings momentum appears sustainable into H2 FY26, supported by cooling inflation, anticipated festive season demand, and a pickup in rural consumption.
Market leadership has been rotating toward capital-intensive sectors, infrastructure, and financials, indicating a shift from defensive to growth-oriented positioning. Investors should note that earnings delivery has outpaced expectations in several mid-cap segments, signalling underlying depth in India’s corporate growth trajectory. This breadth in profitability and sector rotation supports a constructive medium-term equity outlook.
BT: Benchmark indices have been largely stagnant over the past year. What factors do you believe could trigger the next phase of market rally?
Garg: India’s benchmark indices have consolidated over the past year, reflecting rich valuations, geopolitical uncertainties, and global monetary tightening. However, this pause has allowed corporate earnings to catch up, reducing froth in valuations and building a base for the next upcycle. Several catalysts could drive a breakout. First, monetary easing has begun, with the RBI’s recent rate cuts creating a supportive liquidity environment that typically translates into stronger market performance with a lag of two to three quarters. Second, government-led capital expenditure, set at over Rs 11 lakh crore for FY26, continues to underpin infrastructure demand and private investment. Third, improving rural consumption, aided by moderating inflation and stable agricultural output, should lift earnings for consumer-facing sectors.
BT: Given the current economic environment, which sectors are best positioned for growth?
Garg: India’s sectoral outlook reflects a clear divergence between domestic demand-driven industries and global trade-sensitive segments. Financial services remain a cornerstone of market growth, supported by robust credit expansion, healthy asset quality, and technology-driven efficiency gains. The government’s record infrastructure outlay continues to create multi-year visibility for capital goods, construction, and cement companies, while the manufacturing push under “Make in India” is accelerating opportunities in electronics, automotive, and renewable energy. Consumer discretionary sectors, including automobiles and premium retail, are set to benefit from rising disposable incomes and favourable demographics, while staples are enjoying margin stability as raw material prices cool. Technology services are stabilising after a weak cycle, with early indications of recovery in global IT spending, driven by digital transformation and AI-led demand. Healthcare, pharmaceuticals, and diagnostics have emerged as defensive growth opportunities given rising health awareness and private equity interest. Export-oriented industries like chemicals and textiles face near-term headwinds from tariffs and sluggish global demand, but competitive positioning remains intact. Overall, domestic cyclicals such as financials, industrials, and consumption-oriented names are expected to outperform, supported by structural reforms, policy stability, and improving rural sentiment. Renewable energy and electric mobility form a compelling long-term thematic play, reinforced by government incentives and private sector investment. Investors should prioritise sectors with high earnings visibility and pricing power, positioning portfolios to capture India’s structural expansion while managing exposure to globally sensitive industries that remain volatile.
BT: What global risks or tailwinds do you see as most influential in shaping investor sentiment today?
Ans: Global markets are navigating a mix of risks and opportunities that directly influence sentiment toward Indian equities. Trade tensions, including higher tariffs from the US, have created short-term volatility in export-oriented sectors but are simultaneously driving supply chain diversification that benefits India. Slowing growth in Europe and China remains a headwind, yet the US economy is showing signs of a soft landing, with inflation trending closer to target levels. This is creating space for global central banks to adopt more accommodative stances, improving liquidity and appetite for risk assets. Commodity prices are supportive, with Brent crude trading between the mid-$60s and high-$70s, helping India’s inflation trajectory and corporate margins. The rupee remains broadly stable with RBI support, and foreign exchange reserves are near record highs at roughly $691-695 billion, reinforcing macro stability. Strong services exports and a healthy current account balance further strengthen India’s position as a preferred emerging market allocation. While geopolitical tensions in regions like the Middle East and evolving trade policies remain key watch points, much of this risk is already factored into valuations. The backdrop is shifting from tight global liquidity to one of stabilisation, offering scope for renewed capital inflows. India’s structural growth, policy continuity, and improving earnings visibility position it as a long-term outperformer, even as short-term swings persist.
Q. What are the major opportunities you anticipate in India’s capital markets over the next 3 to 5 years?
Ans: India’s capital markets are undergoing a structural transformation driven by domestic liquidity, policy reforms, and deepening participation from retail and institutional investors. Over the next five years, one of the largest opportunities lies in the formalisation of savings, with mutual fund assets already surpassing Rs 75 lakh crore and systematic investment plan inflows at record highs, setting the stage for a broader equity culture. Digital infrastructure is expanding the reach of capital markets, enabling retail participation beyond metro cities. A steady pipeline of large IPOs from technology, consumer, and infrastructure sectors will further diversify the index composition, improving depth and liquidity. Fixed-income markets are evolving with India’s likely inclusion in global bond indices, which could attract significant foreign capital and lower borrowing costs for corporates. Equity derivatives are also witnessing rapid growth, supported by improved market infrastructure. The next decade is expected to see increasing integration of environmental, social, and governance (ESG) themes, offering opportunities in renewables, electric mobility, and sustainable finance. Private equity and venture capital activity are broadening the pre-IPO ecosystem, creating a stronger funnel of companies for public markets.
BT: Reliance Jio is expected to list in the first half of 2026. How large do you estimate the IPO to be?
Ans: Reliance Jio’s planned listing in early 2026 is likely to be one of India’s largest IPOs, potentially valuing the company above Rs 8–10 lakh crore, reflecting its dominant market share and expanding role as a digital services platform. The offering is expected to raise over Rs 50,000 crore, significantly strengthening Reliance Industries’ balance sheet and unlocking shareholder value by providing direct exposure to Jio’s rapidly growing business segments, including telecom, broadband, and digital commerce.
Investors on Dalal Street found limited opportunities over the past year, as the benchmark BSE Sensex slipped more than 2% amid geopolitical tensions, persistent foreign fund outflows, and trade tariff concerns. So, how does the market look after the Goods and Services Tax (GST) Council on Wednesday approved a simplified dual-slab structure of 5% and 18%, scrapping the existing 12% and 28% rates?
Last week, the Indian economy also reported a robust 7.8% growth in gross domestic product (GDP) for Q1 FY26. In an interaction with Business Today, Anirudh Garg, Partner and Fund Manager, INVasset PMS, shared his views on the GST2.0, market outlook and Q1 GDP growth. He also said that market leadership has been rotating toward capital-intensive sectors, infrastructure, and financials, indicating a shift from defensive to growth-oriented positioning. Edited excerpts:
BT: How do you see GST2.0? Which sectors are likely to benefit the most?
Garg: The rationalisation into two primary slabs—5% and 18%—paired with a 40% sin tax on luxury and tobacco products, creates a framework that balances affordability with fiscal prudence.
Consumer-facing industries are immediate beneficiaries. Durable goods such as air conditioners, televisions, and dishwashers now attract 18% instead of 28%, easing costs for households and lifting demand prospects for manufacturers. The auto sector, especially entry-level cars and two-wheelers, also benefits from lower tax incidence, reinforcing a recovery in volumes.
FMCG staples including packaged food and personal care products now fall under the 5% bracket, creating price efficiencies that can widen consumption at the bottom of the pyramid. Insurance products—both health and life—have been exempted, giving insurers new levers to expand penetration in underserved segments. Renewable energy equipment gains from lower tax rates as well, reducing project costs and accelerating investment in the clean energy transition.
Interestingly, even the introduction of a higher sin tax can hold positive implications for companies in the tobacco and luxury segments. Demand in these categories tends to be relatively inelastic, meaning volumes are not significantly impacted by price hikes. As a result, firms can pass on the tax burden, sustain margins, and benefit from stronger revenue collections. Thus, while the reform discourages excess consumption, it simultaneously preserves industry profitability, creating a balanced outcome.
BT: What does the robust GDP growth of 7.8% in Q1FY26 mean for the equity markets going forward? Will the momentum sustain?
Garg: Equity markets are likely to interpret this growth as a confirmation of India’s structural strength rather than an anomaly caused by external factors such as tariffs. Although new US trade restrictions create short-term volatility, the domestic growth narrative remains consumption-led, supported by healthy credit growth, falling inflation, and an accommodative monetary stance. With household and corporate balance sheets in better shape than in previous cycles, the market’s medium-term outlook remains constructive.
Valuations, while elevated in some pockets, are justified by earnings visibility and record inflows from domestic mutual funds. The breadth of growth across sectors — from manufacturing to digital services — signals that India’s momentum is not a product of speculative positioning but rather of policy continuity and macroeconomic stability. As global investors rebalance exposure amid heightened trade tensions, India’s appeal as a relatively insulated, high-growth market should persist. Near-term volatility tied to tariff headlines could provide attractive entry points for long-term investors. The 7.8% growth rate reinforces the thesis of India being a structural outperformer, making any market dips more a buying opportunity than a cause for concern.
BT: How would you assess the Q1 earnings season? Which sectors have delivered strong performance?
Garg: The Q1 FY26 earnings season highlighted a nuanced picture of India’s corporate health, with overall net profit growth at roughly 8-8.5% year-on-year, despite challenging base effects and global demand softness. Revenue growth moderated to around 8-9%, reflecting cautious consumer sentiment and uneven export trends. Sectors linked to domestic infrastructure and consumption showed leadership, with capital goods and construction players benefitting from government-led spending and private sector order visibility. The banking and financial services sector remained resilient, supported by healthy credit growth, controlled non-performing assets, and a stable interest rate environment after the Reserve Bank of India’s policy easing. IT services companies posted modest revenue growth as global technology spending showed early signs of recovery, although pricing pressure persisted. Consumer staples and discretionary sectors witnessed margin improvement as raw material prices stabilized, leading to stronger-than-expected earnings rebound. Automobiles recorded robust volume growth driven by festive demand expectations, while energy and metals faced mixed results due to volatile commodity pricing. Overall, this quarter reinforced India’s earnings cycle as being firmly in an expansionary phase, with broad-based participation beyond traditional sectors. Earnings momentum appears sustainable into H2 FY26, supported by cooling inflation, anticipated festive season demand, and a pickup in rural consumption.
Market leadership has been rotating toward capital-intensive sectors, infrastructure, and financials, indicating a shift from defensive to growth-oriented positioning. Investors should note that earnings delivery has outpaced expectations in several mid-cap segments, signalling underlying depth in India’s corporate growth trajectory. This breadth in profitability and sector rotation supports a constructive medium-term equity outlook.
BT: Benchmark indices have been largely stagnant over the past year. What factors do you believe could trigger the next phase of market rally?
Garg: India’s benchmark indices have consolidated over the past year, reflecting rich valuations, geopolitical uncertainties, and global monetary tightening. However, this pause has allowed corporate earnings to catch up, reducing froth in valuations and building a base for the next upcycle. Several catalysts could drive a breakout. First, monetary easing has begun, with the RBI’s recent rate cuts creating a supportive liquidity environment that typically translates into stronger market performance with a lag of two to three quarters. Second, government-led capital expenditure, set at over Rs 11 lakh crore for FY26, continues to underpin infrastructure demand and private investment. Third, improving rural consumption, aided by moderating inflation and stable agricultural output, should lift earnings for consumer-facing sectors.
BT: Given the current economic environment, which sectors are best positioned for growth?
Garg: India’s sectoral outlook reflects a clear divergence between domestic demand-driven industries and global trade-sensitive segments. Financial services remain a cornerstone of market growth, supported by robust credit expansion, healthy asset quality, and technology-driven efficiency gains. The government’s record infrastructure outlay continues to create multi-year visibility for capital goods, construction, and cement companies, while the manufacturing push under “Make in India” is accelerating opportunities in electronics, automotive, and renewable energy. Consumer discretionary sectors, including automobiles and premium retail, are set to benefit from rising disposable incomes and favourable demographics, while staples are enjoying margin stability as raw material prices cool. Technology services are stabilising after a weak cycle, with early indications of recovery in global IT spending, driven by digital transformation and AI-led demand. Healthcare, pharmaceuticals, and diagnostics have emerged as defensive growth opportunities given rising health awareness and private equity interest. Export-oriented industries like chemicals and textiles face near-term headwinds from tariffs and sluggish global demand, but competitive positioning remains intact. Overall, domestic cyclicals such as financials, industrials, and consumption-oriented names are expected to outperform, supported by structural reforms, policy stability, and improving rural sentiment. Renewable energy and electric mobility form a compelling long-term thematic play, reinforced by government incentives and private sector investment. Investors should prioritise sectors with high earnings visibility and pricing power, positioning portfolios to capture India’s structural expansion while managing exposure to globally sensitive industries that remain volatile.
BT: What global risks or tailwinds do you see as most influential in shaping investor sentiment today?
Ans: Global markets are navigating a mix of risks and opportunities that directly influence sentiment toward Indian equities. Trade tensions, including higher tariffs from the US, have created short-term volatility in export-oriented sectors but are simultaneously driving supply chain diversification that benefits India. Slowing growth in Europe and China remains a headwind, yet the US economy is showing signs of a soft landing, with inflation trending closer to target levels. This is creating space for global central banks to adopt more accommodative stances, improving liquidity and appetite for risk assets. Commodity prices are supportive, with Brent crude trading between the mid-$60s and high-$70s, helping India’s inflation trajectory and corporate margins. The rupee remains broadly stable with RBI support, and foreign exchange reserves are near record highs at roughly $691-695 billion, reinforcing macro stability. Strong services exports and a healthy current account balance further strengthen India’s position as a preferred emerging market allocation. While geopolitical tensions in regions like the Middle East and evolving trade policies remain key watch points, much of this risk is already factored into valuations. The backdrop is shifting from tight global liquidity to one of stabilisation, offering scope for renewed capital inflows. India’s structural growth, policy continuity, and improving earnings visibility position it as a long-term outperformer, even as short-term swings persist.
Q. What are the major opportunities you anticipate in India’s capital markets over the next 3 to 5 years?
Ans: India’s capital markets are undergoing a structural transformation driven by domestic liquidity, policy reforms, and deepening participation from retail and institutional investors. Over the next five years, one of the largest opportunities lies in the formalisation of savings, with mutual fund assets already surpassing Rs 75 lakh crore and systematic investment plan inflows at record highs, setting the stage for a broader equity culture. Digital infrastructure is expanding the reach of capital markets, enabling retail participation beyond metro cities. A steady pipeline of large IPOs from technology, consumer, and infrastructure sectors will further diversify the index composition, improving depth and liquidity. Fixed-income markets are evolving with India’s likely inclusion in global bond indices, which could attract significant foreign capital and lower borrowing costs for corporates. Equity derivatives are also witnessing rapid growth, supported by improved market infrastructure. The next decade is expected to see increasing integration of environmental, social, and governance (ESG) themes, offering opportunities in renewables, electric mobility, and sustainable finance. Private equity and venture capital activity are broadening the pre-IPO ecosystem, creating a stronger funnel of companies for public markets.
BT: Reliance Jio is expected to list in the first half of 2026. How large do you estimate the IPO to be?
Ans: Reliance Jio’s planned listing in early 2026 is likely to be one of India’s largest IPOs, potentially valuing the company above Rs 8–10 lakh crore, reflecting its dominant market share and expanding role as a digital services platform. The offering is expected to raise over Rs 50,000 crore, significantly strengthening Reliance Industries’ balance sheet and unlocking shareholder value by providing direct exposure to Jio’s rapidly growing business segments, including telecom, broadband, and digital commerce.