GST cut a market re-rating trigger but tariff risks weigh: Capitalmind CEO

India’s equity market deserves to be re-rated on the back of tax cuts, a GST rejig and a strong policy push towards domestic manufacturing, but lingering tariff risks and policy uncertainty could keep indices volatile in the near term, said Deepak Shenoy, Chief Executive Officer at Capitalmind, in a conversation with BT TV.

Shenoy’s comments came after Indian equities underperformed in August, with the Nifty falling 1.2 per cent and the Sensex 1.6 per cent. Midcaps and smallcaps, however, bucked the trend with nearly 2.5 per cent gains, aided by rotational leadership across sectors. 
Cyclicals and domestic-facing stocks led the move, with autos, metals and consumer discretionary outperforming on strong demand signals and festive optimism, while IT lagged on global demand concerns.

“The market has gone through a boring phase. Now usually boring phases end with exciting phases,” Shenoy said, adding that the excitement could swing either way. He highlighted the government’s push to manufacturing, lower rates, higher discretionary income through tax cuts and GST relief as factors creating conditions for a future bull market.

At the same time, he warned that trade-policy frictions could intensify. “This 50 per cent tariff could become a 100 per cent tariff. They are making noises about tariffs on IT. Of course, we will retaliate, but that will hurt both players,” he cautioned. Until clarity emerges, he expects indices to remain choppy even as quality companies continue to deliver earnings.

Asked about the net foreign portfolio outflows, Shenoy said FIIs no longer dominate market direction. “Earlier, it used to be FIIs that created the bull runs. Today, I think they will just participate in them,” he said, pointing to rising domestic inflows. A reversal, he argued, would depend on global stability and recognition of India’s growth momentum. “Money will flow into countries where growth is strong, and India’s growth is quite strong,” he added.

Shenoy also framed India’s policy stance as part of a broader strategy to reduce external vulnerabilities. “We integrated into the world economy only in the last 20–25 years. Our financial system is almost entirely domestic. Our retail system is almost entirely domestic,” he noted, citing UPI as an example of how India built alternatives to global networks like Visa and Mastercard. The aim, he said, is to ensure the country cannot be crippled during geopolitical frictions. “This self-reliance will take a decade, but it will push more domestic companies to produce for our own needs.”

On sectors, Shenoy was cautious on core metals and commodities, and said consumer staples look “very highly valued” relative to growth prospects. By contrast, he favors consumer discretionary, arguing that rising spending power will drive demand.In healthcare, he prefers hospitals but remains wary of diagnostics due to fragmented competition and potential regulatory shifts.

Summing up, Shenoy said structural positives remain intact, but trade and policy risks could keep markets range-bound. “While uncertainty lasts, we will probably still go through this up and down phase,” he said.