GST Reform Proposal lifts Nifty Auto, Consumer Durable; Fiscal Risks Drag Bonds 

Market opened full three days after Prime Minister Narendra Modi announced a proposal for GST reforms in his Independence Day Speech. In these three days, many conjectures were drawn on what goods will become cheaper and what will be dearer. This effect was clearly seen in Nifty sectoral indices today.

Nifty Consumer durable and Nifty Auto both rose over 3%, with media reports indicating major relief for them. Maruti Suzuki added nearly 10% to its valuation as small cars are expected to be one of the biggest beneficiaries. 

The market is also betting on a revision in GST rates for white goods, which could lower product prices and drive volume growth in categories that have seen sluggish demand over the past year.

Insurance companies also attracted strong buying. Expectations that GST on health and life insurance premiums could be reduced to 5% or fully exempt lifted the sector, given the structural push for wider insurance penetration in India.

Overall, Indian equities surged sharply higher on Monday, as investors expect GST rationalisation to unlock demand across multiple sectors. 

Market breadth remained strongly supportive, with nearly two stocks advancing for every one that declined. 

HIGHLIGHTS

• Vodafone Idea urges Centre to settle AGR dues to enable bank’s support by March
• Sebi extends deadline for margin obligations pledge framework
• Tata Capital clocks 120% on year growth in Q1 profit at ₹10.41 biillion
• Gautam Adani says single geopolitical incident can restrict growth
• Russia's Putin dials PM Modi, briefs him on recent meeting with Trump  

Not everyone was smiling though. Indian government bonds slumped on Monday, erasing gains made after S&P’s rating upgrade, as fresh fiscal worries overshadowed sentiment. The benchmark 10-year yield climbed nearly 10 basis points to 6.4968%, reflecting heavy selling pressure across the curve.

The trigger was again GST reforms. While positive for consumption, the move raised concerns over fiscal discipline, as GST remains a key revenue source. IDFC First Bank estimated the cuts could cost the Centre and states about $20 billion annually.

Traders turned risk-averse, citing fiscal uncertainty, frequent variable rate reverse repo (VRRR) operations by the Reserve Bank of India, and lack of clarity around US-India trade negotiations. The sell-off highlighted market unease about potential higher government borrowing to bridge the fiscal gap.

Despite the market’s reaction, the government maintained that its deficit target remains achievable. Economists, however, flagged a nuanced outlook. UBS Securities suggested lower GST rates could have a disinflationary impact, creating space for further monetary easing. With core inflation contained, UBS expects the repo rate to potentially fall towards the 5.0–5.25% range, offering medium-term support for bonds.

The Indian rupee strengthened on Monday, tracking a rally in domestic equities after Prime Minister Narendra Modi announced plans for sweeping GST reforms. The currency closed at 87.35 per US dollar, appreciating 0.23% from Friday’s 87.55.

The reform plan aims to simplify the tax structure by introducing two slabs of 5% and 18%, replacing the existing 12% and 28% rates on several items. Investors expect the cuts to spur household demand and improve growth prospects, lending support to risk sentiment and the rupee.

Despite the gains, traders noted that forward premiums and volatility expectations remained stable, with global risks still weighing on the outlook. In particular, steep US tariffs on Indian exports, set to double to 50% from August 27, continue to threaten capital inflows.

Some optimism emerged from geopolitical developments, with US President Donald Trump pressing Russia and Ukraine toward a potential deal following talks with Vladimir Putin. Any easing of tensions, traders said, could help restore foreign investor confidence and potentially soften Washington’s tariff stance. 
 

OUTLOOK
Equity benchmarks will likely extend their upward bias, supported by the government’s proposed GST rate rationalisation, which will simplify the structure into two slabs of 5% and 18%. This reform will be expected to lift consumption across consumer durables, FMCG, and autos, thereby boosting corporate earnings momentum. Insurance and healthcare-related stocks will also benefit if tax rates on premiums are reduced, sustaining investor interest in defensive pockets. However, global trade tensions and the US tariff hike on Indian exports will continue to temper foreign portfolio flows.

On the bond market front, volatility will likely remain elevated. The benchmark 10-year yield, which spiked recently on fiscal concerns, will probably stay range-bound between 6.45% and 6.52%. The fiscal cost of GST cuts will raise supply expectations, but moderating inflation trends may encourage investors to reassess their bearish positions. 

The rupee will likely remain sensitive to both domestic reforms and geopolitical signals. While GST changes and stronger equities will provide near-term support, the looming US tariff hike on Indian goods and uncertainty over the Russia–Ukraine talks will cap gains. RBI intervention will remain crucial in defending the 87.95 level, with traders expecting the central bank to smooth volatility if global shocks intensify.

Key Events & Data Due Tuesday:

Economic Data

• US July Housing Starts Data
• US Atlanta Fed GDPNow 

Corporate Actions

• Aditya Infotech to detail earnings
• GNG Electronics to detail earnings
• Suratwwala Business Group to consider dividend
• Tembo Global Industries to consider fund raising

Policy Events

• US FOMC Member Bowman Speaks