The domestic benchmark indices, Nifty 50 and Sensex, began the week with a positive trend fueled by strong global signals, but it raises the question of whether the excitement surrounding the Goods and Services Tax ( GST) rate cut is waning and will the market be able to sustain the gains ahead?
Some market experts believe that in the short term, global cues will have a stronger influence on market direction, despite the optimism surrounding recent GST rate cuts.
Analysts point out that the Nifty 50’s pullback after a strong opening last week – following the GST cut announcement – indicates that the initial enthusiasm may be fading. Although the index gained over 1% early in the week, it ultimately ended lower, reflecting a loss of momentum despite Friday’s strong start.
In the midst of heightened tensions surrounding India-US relations last week, the notable positive factor that uplifted market sentiment was the recent GST reforms. The influential GST Council decided to lower taxes on the majority of commonly used goods as part of the government’s initiative to enhance consumer spending. Starting September 22, there will be two tax slabs of 5% and 18%, replacing the existing four slabs of 5%, 12%, 18%, and 28%.
Mohit Gulati, the CIO and managing partner of ITI Growth Opportunities Fund, said that while the GST cut is certainly welcome, let’s be clear-it’s not a game-changer when domestic borrowings are ballooning. What it will do, however, is lift festive sentiment.
“Consumers think differently during this season, and lower prices in categories like white goods and cars can trigger demand. Everyday essentials-like toothpaste-will show impact with a lag, likely in the fourth quarter. The bigger picture is that India is finally easing out of a taxation maze that was draining household savings. If inflation stays under control, this move could add just the right festive smile to the economy,” said Gulati.
Two key challenges ahead for the market
“The sharp spurt in demand after September 22nd, when the new GST rates come into existence, will lift the market sentiments,” opined Dr VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd, but he believes that the Indian stock market still faces two challenges.
According to the market veteran, the twin risks are sustained selling by Foreign Institutional Investors (FIIs) – which shows no signs of reversal – and concerns surrounding what President Trump would do next. The uncertainty is likely to continue in the near term, he added.
FIIs continued their trend of selling during the first week of September, having divested ₹5,666 crore in the cash market. This brings the cumulative outflows by FIIs in 2025 to a total of ₹176,606 crore. Following a divestment of ₹121,210 crores in 2024, the scale of FPI selling is indeed substantial. Despite the optimism surrounding the GST reforms, FPIs have consistently sold their holdings on every day of September thus far.
However, in a sign of a positive shift, Donald Trump softened his approach by highlighting the strong personal connection he shares with PM Modi, referring to their relationship as “special.” Prime Minister Modi promptly replied, confirming that he “fully reciprocates” Trump’s positive feelings, emphasising the forward-looking aspect of the India-US partnership. These cordial personal interactions suggest a possibility of a timely improvement in relations concerning significant trade and geopolitical matters.
The benchmark indices are showing gains in Monday’s trading session, bolstered by strong global signals and investor optimism regarding the potential for improved relations between the US and India under the leadership of Trump and Modi. However, more clarity is expected in the near future.