Tariff Headwinds Dampen Benefits Of GST Cuts — Read Motilal Oswal's Report

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Motilal Oswal Report

GST reforms poised to boost consumption growth engine

The Finance Ministry has proposed a significant overhaul of the GST structure, rationalizing it into two primary slabs — 5% for essentials and 18% for most goods — while retaining a peak rate of 40% for luxury and sin items. These GST reforms are intended to cushion Indian industries and consumers, revive domestic consumption, and provide relief to sectors facing steep US tariff headwinds such as automobiles, garments, and electronics.

Key segments likely to benefit include: Consumer Staples (boosted by stronger demand and lower input costs), Automobiles (especially fourwheelers), Cement, Hotels (sub-Rs 7,500 room inventory), Retail (footwear), Consumer Durables (notably RACs), Logistics, Quick Commerce, and Electronics Manufacturing Services (EMS, with improved demand prospects particularly for ACs).

Trade tariffs are starting to reflect in US inflation

US CPI inflation climbed sharply due to post-pandemic recovery, global supply chain shocks, and fiscal stimulus, peaking at 9.1% in Jun’22, far above any tariff-related impact.

Aggressive monetary tightening by the Federal Reserve helped bring inflation down significantly through 2023- 24, restoring price stability closer to the 2-3% range.

With the latest tariff announcements, inflationary pressures are re-emerging, as higher import costs begin feeding into consumer prices. CPI has edged higher in recent months; while tariffs are not the sole driver, their contribution is becoming more visible and is expected to intensify. 

US CPI is now expected at 2.8-3.3% in CY25 (well above the Fed’s earlier target of 2%), as tariffs and sticky inflation slow the pace of disinflation.

The key highlights of the 'The Eagle Eye' are as follows:

• India underperforms global equities monthly and YTD;

• Trade tariffs are starting to leave a visible imprint on U.S. inflation;

• Estimated GDP impact of US Tariffs by country;

• GST reforms poised to boost the consumption Growth Engine;

• A review of India markets since Sep’24 highs;

• Earnings remain muted, however, domestic flows hits record highs;

• About 70% of the BSE-200 constituents end lower in Aug’25;

• Earnings growth outpaced the index only in Midcaps;

• DII monthly inflows hit second-highest level, FII outflows intensify;

• India–US 10-year yield spread widens marginally after hovering near historical lows;

• Large-cap valuations near their average; small- and mid-caps remain stretched.

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