GST a short-term fix? Why UBS thinks India’s real boost is still coming
Where does India find the foundation of India, creating an unpredictable landscape of global volatility? The answer to Gautam Chhaochharia, President of the Global Markets in Ubs Securities India, is simple: in the wallets of his people. As global markets faced uncertainty, it was convinced that domestic consumption would be the anchor of the country’s economic growth. It foresees a temporary increase in demand from the latest goods and service tax deductions, but does not see that Indian Inc.’s long -term problems are dealt with on its own.
Despite the difficulties, the latest tax cuts continue to rise on consumption, which is a bet supported by the expenditure of Potential Payment Commission in 2027, and the monetary policy alleviating. In the midst of slowing down inflation, Chhaochharia thinks that there are two rates of deduction in the 26 -fiscal year, and the previous deductions are expected to reflect in corporate gains from the December quarter.
According to him, when the acceleration of earnings growth returned, it would be easier to defend India’s premium valuation than developing market peers. However, he also states that the US imposition and other geopolitical uncertainties are currently creating serious difficulties for such expectations.
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You have claimed that GST cuts will increase consumption in the near term. How do you see this being played?
Wherever the product categories see GST ratio, we should immediately see a welcome in demand within the next three to six months. Packaged foods and personal care should see a direct and visible increase as lower prices expand the consumer base. Medium -ticket foundations such as air conditioners and televisions are now more likely to purchase. On the optional side, rural and semi-urban buyers are quite sensitive to cars and two-wheel vehicles. Hotels and airlines can also see higher feet. Product upgrades will further help premiumization.
How sustainable this consumption will this consumption be?
GST guided support is actually short -term and does not permanently remove the demand curve. The turnkey is whether this stimulus can obtain sufficient consumption -leading income for the government to compensate for any decrease in other financial expenditures. Otherwise, the effect on demand may be neutralized over time. In order to maintain the increase, more powerful demand and hopefully better visibility should trigger a revival in private corporate Capex and fed to higher household revenues. Without this virtuous loop, consumption increase may be short -lived.
How do you see that rural and urban consumption tendencies have increased after tax deductions?
Rural economy recovers, but at a lighter speed than expected. Tractor sales remain silent and two -wheeled sales, although healing, is still under illegal peaks. The Indian economist of UBS estimates the deductions of the 25-50 basic score ratio for the rest of the 26 financial years. Two ratio deductions of 25 BPS are possible. This facilitating will give a greater push through GST measures, with lower EMIs and better financing access to urban demand.
So, can GST cuts alone make a gain?
Not alone. We believe that the second half of the year should see the recovery of earnings from the three factors: the low base effect, the delayed effect of monetary expansion, and GST cuts. Monetary expansion typically takes a few quarters to filter the economy. Previous earnings frustrations may have reflected the expectation of immediately receiving demand after the unrealistic RBI (Indian Reserve Bank) deductions. The second half is that these measures begin to show the results. For FY26, consensus Nifty EPS (earning per share) has already been reduced by about 2%, but it is likely to be under the earnings in September.
India’s values are often defined as rich. How do you reconcile it with the decreases of the latest earnings?
India trades with approximately 22 times further earnings compared to the average 10 -year average of 20x, which makes it expensive compared to its absolute and developing market peers. Historically, this was supported by India’s growth story. However, following the latest FY26 EPS, the close -term growth change change is less attractive. However, when growth heals in line with expectations, valuation concerns should be withdrawn.
How are foreign investors looking at India right now?
Foreign portfolio investors (FPI) NET has sold about $ 25 billion of stocks so far this year, but most of them have been balanced with local investment fund entrances of approximately 26 billion dollars. However, we should say that developing markets as a class of assets have been performing low performance of US markets in 75% of the annual rolling horizons since 2007. India still seems structurally placed structurally, but may ask for growth visibility before increasing global investors.
Which sectors do you find attractive in this environment?
Tactically, IT (Information Technology) currency looks interesting because of tail winds – Rupi made 2% depreciation against the dollar this year – and relatively light positioning. However, the medium -term view is clouded with concerns about the adaptation of investor AI and automation. Meanwhile, consumption continues to be the basic bull theme. Financially, businesses connected to certain capital markets seem attractive, because some should see that snow pools grow faster than the system average.
Markets are dependent on range. Are you waiting for a break soon?
Not immediately. Local SIP (Systematic Investment Plan) Introduction LaMonthly 27,000 Crore disadvantage is the pillow, a heavy public offering (first public offers) and the PE (private capital) pipeline. A breakage requires a visible acceleration or gaining growth or a global shock in GDP (gross domestic product), which can force a flame.
What are the main risks of your appearance?
Recently, we have raised India in the context of EM (an developing market) as neutral from low weight, and there are three basic risks for our perspective. The first is that it does not turn into a financial demand. Secondly, developing technologies create a slower employment. The third risk is geopolitical: tariffs or worsening global trade can be released from the export of India and even the revival of production.
