GST revisions have resulted in a 5–10% cut across auto categories, which is expected to strengthen demand from first-time buyers and for premium segments of passenger vehicles and two-wheel drive vehicles. While affordability should improve for both entry-level and premium segments, commercial vehicle demand may take longer to recover. Additionally, the Reserve Bank of India (RBI) is considering reducing risk weights for auto loans — which, alongside policy easing and improved liquidity transmission, could further support sector growth. With supportive GST revisions, improving earnings revision breadth and light investor positioning, the sector appears well-positioned for growth.
Key takeaways
- Disappointing corporate earnings, lackluster domestic consumption, higher valuations, adverse tariff outcomes and a weakening currency have all weighed on Indian equities over the past year.
- Policymakers’ measures to revive domestic growth, including the largest Goods and Services Tax (GST) overhaul in eight years, should help offset the adverse impact of sluggish earnings and U.S. tariffs in the coming quarters.
- Consumers and sectors such as autos, insurance and healthcare are set to be the main beneficiaries of the new two-tier GST structure.
Can recent growth reforms revive India’s bull market?
Indian equities have had a volatile year, with a period of correction toward the end of 2024, followed by significant pressure as U.S. tariffs and weak earnings weighed on sentiment. However, a strong policy push to revive domestic growth is set to ease inflation and fuel demand, boosting the outlook for India’s equity market.
The GST overhaul, which is the largest in eight years, follows other pro-growth policy measures announced this year, including tax cuts and monetary policy easing — the latter includes total repo rate cuts of 100 basis points (bp) and a Cash Reserve Ration (CRR) cut of 150 bp.
“Indian equities have experienced significant pressure over the past year, driven by disappointing corporate earnings, lackluster domestic consumption, higher valuations, adverse tariff outcomes and a weakening currency. However, the silver lining is that policymakers’ focus on reviving the domestic growth engine has been visible since the start of this year,” said Rajiv Batra, head of Asia and co-head of Global Emerging Markets Equity Strategy at J.P. Morgan.
India’s GST (Goods and Services Tax) Council is lowering tax rates from September 22 for essentials (5% or exempt) and aspirational products, such as premium food and beverage or high-end electronics (18%), while luxury goods and sectors such as alcohol and tobacco face a higher rate of 40%.
The incoming cuts are aimed at supporting consumption by lowering prices, enabling households to spend more on discretionary goods and services or increase financial investments.
“The positive momentum from GST 2.0 will partially help offset the adverse impact of U.S. tariffs in the coming quarters. While short-term uncertainties may keep markets range-bound in the near term, improving macro indicators and a strong earnings trajectory could set the stage for a rally from the second half of 2026 onward,” Batra said.
Consumption will be a key driver for India’s growth going forward
The contribution of consumption to India’s GDP growth will be key in the coming years, climbing to 4.4% by the end of 2026.
Overall, consumption is expected to rise significantly, combined with pent-up demand and the income tax relief announced in the budget. This boost should also improve industry capacity utilization and potentially drive new investments, making private capital expenditure (capex) a strong contributor to growth from the end of 2027 onward.
The benefit to consumers is estimated to be around 0.6% of GDP, particularly in durables, apparel and footwear.
Exporters will also benefit from lower input costs, partially offsetting the impact of higher tariffs. As domestic demand strengthens, manufacturers that previously prioritized export-led production may increasingly redirect their output to serve the local market.
“While short-term uncertainties may keep markets range-bound in the near term, improving macro indicators and a strong earnings trajectory could set the stage for a rally from the second half of 2026 onward.”
Rajiv Batra
Head of Asia & co-head of Global Emerging Markets Equity Strategy at J.P. Morgan
Additionally, the rise in consumption should have a positive knock-on effect for earnings — particularly in direct beneficiary sectors — through an increase in volumes, sales and margin improvements.
The negative demand impact in August and September should be offset by the upcoming festive and marriage season. This should lead to a slowdown in earnings downgrades of financial year (FY) 2026 estimates and potentially upgrades of around 5–10% of FY27 estimates for key sectors.
“After five quarters of depressed earnings, consensus expects a pick-up in the coming quarters. MSCI India consensus earnings growth estimates for the 2025/26 calendar year are 13% and 16% respectively,” Batra said.
What sectors could benefit most from India’s GST reforms?
Along with consumers, certain sectors are set to benefit more than others from the new GST structure.
GST rates for key fast-moving consumer goods (FMCG) categories have been reduced to 5% from previous levels of 12% and 18%, which is expected to boost demand by lowering consumer prices, benefiting branded players and encouraging shoppers to trade up. As companies pass on these tax reductions, margin improvement could be supported by volume growth, reduced promotional spending and a better product mix. In the discretionary segment, footwear and apparel priced below 2,500 Indian rupees (INR) ($29) will attract a 5% GST, while premium items will be taxed at 18%. Consumer durables such as air conditioners and televisions will see GST lowered to 18% from 28%.
The GST rate on cement sales has been reduced from 28% to 18%. While the GST on coal (which is used extensively in the cement industry) has been increased from 5% to 18%, the compensation levy of 400 INR/MT (metric tonne) has been removed. This should overall reduce taxation on coal input for cement companies, with estimated net savings of INR 30–40/MT. However, the possibility of lower government capex in the second half could be an overhang even as material new capacity is added.
Health and life insurance premiums will now be exempt from GST, compared with the previous rate of 18%. Although the removal of input tax credit may result in some costs being passed on to customers, the net impact will still be a reduction in overall costs relative to the earlier GST burden. This change is expected to enhance affordability and support volume growth within the sector.
Lower GST of 5% (vs. 12% previously) on a wide-range of medicines, medical devices, diagnostic kits and reagents will help ease the overall cost burden of treatment and enhance access to healthcare. Additionally, 36 life-saving drugs (from cancer therapies to medicines for rare diseases) are fully exempt. Nil GST on health insurance will lead to improved penetration and may boost inpatient volumes for hospitals.
Earnings are expected to pick up in the coming quarters
India’s earnings are expected to pick up toward the end of 2025 and in the first quarter of 2026.
Related insights
-
Global Research
Will gold prices break $4,000/oz in 2026?
June 10, 2025
Gold prices have continued to surge in 2025 due to trade uncertainty and geopolitical risks. What is the gold price forecast for this year and beyond?
-
Global Research
US tariffs: What’s the impact on global trade and the economy?
August 11, 2025
J.P. Morgan Global Research brings you the latest updates and analysis of President Trump’s tariff proposals and their economic impact.
-
Global Research
Currency volatility: Will the US dollar regain its strength?
April 30, 2024
In light of ongoing tariff uncertainty, will the dollar continue its downtrend? And what’s the outlook for other major currencies?
This communication is provided for information purposes only. Please read J.P. Morgan research reports related to its contents for more information, including important disclosures. JPMorgan Chase & Co. or its affiliates and/or subsidiaries (collectively, J.P. Morgan) normally make a market and trade as principal in securities, other financial products and other asset classes that may be discussed in this communication.This communication has been prepared based upon information, including market prices, data and other information, from sources believed to be reliable, but J.P. Morgan does not warrant its completeness or accuracy except with respect to any disclosures relative to J.P. Morgan and/or its affiliates and an analyst's involvement with any company (or security, other financial product or other asset class) that may be the subject of this communication. Any opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This communication is not intended as an offer or solicitation for the purchase or sale of any financial instrument. J.P. Morgan Research does not provide individually tailored investment advice. Any opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies to particular clients. You must make your own independent decisions regarding any securities, financial instruments or strategies mentioned or related to the information herein. Periodic updates may be provided on companies, issuers or industries based on specific developments or announcements, market conditions or any other publicly available information. However, J.P. Morgan may be restricted from updating information contained in this communication for regulatory or other reasons. Clients should contact analysts and execute transactions through a J.P. Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.This communication may not be redistributed or retransmitted, in whole or in part, or in any form or manner, without the express written consent of J.P. Morgan. Any unauthorized use or disclosure is prohibited. Receipt and review of this information constitutes your agreement not to redistribute or retransmit the contents and information contained in this communication without first obtaining express permission from an authorized officer of J.P. Morgan.