GST 2.0—The Big 'Antidote' To US Tariff Pain? Kotak AMC's Nilesh Shah Favours THIS Trading Move

GST 2.0: The goods and services tax rationalisation, which aims to simplify the existing tax rate process and bring the GST rate to two slabs, is widely seen as a stimulus for consumption to drive the Indian economy. Most of the brokerages believe that even though the GST rejig process is said to drive urban demand in the festive season, it will impact 0.3-0.4% of India's gross domestic product (GDP) revenue on an annualised basis.

According to global brokerage Morgan Stanley, a 50-60 basis point (bps) impact is anticipated on the overall tax collections. Analysts say the loss in GST revenues could put pressure on the fiscal balance. The impact on the central government deficit should be less than 0.1% of India's GDP, as per the brokerage.

Additionally, Antique Stock Broking anticipates that the GST reforms may lead to a 5-6% hit on India's GST collections. However, most analysts believe the impact on GDP may partly be offset by a boost in consumption.

Ahead of the high-stakes GST Council meeting where the proposed GST tax slabs will be discussed, Nilesh Shah, Managing Director of Kotak Mahindra AMC, spoke to Niraj Shah, Executive Editor of NDTV Profit, in an exclusive interaction and highlighted the impact of the upcoming GST reforms on the stock market and the Indian economy.

According to Shah, the Indian stock market will be volatile and choppy for now and react to events at this point in time. "Currently, the market is discounting US tariffs as short-term in nature. If there's an escalation, for example, if European nations join in, or if it gets extended from the current set of goods and baskets to, let's say, include pharma or something else, then there will certainly be a correction in the market," explained Shah.

According to the D-Street expert, the future trend of the market is more likely to be driven by earnings rather than valuation and re-rating. So, the way corporate earnings growth picks up after a 'somewhat' subdued first quarter will also determine what happens to the market trend.

On making the right trading move in the current market scenario, Shah suggested, "At best, my best guess is that events will continue to shape the market, and this will be a market which will be a 'buy on correction' rather than a 'sell on rally' for a long-term investor."

Coming to whether the consumption uptick will bolster the stock market sentiment, Shah believes that for markets to go up, buying has to be more aggressive than the selling. "For domestic buyers to become aggressive and give an exit to FPIs, either the earnings growth acceleration will be required or some of the current geopolitical headwinds must turn down."

"On the other hand, if the domestic situation worsens, then FPI selling may become aggressive," added Shah. According to the Kotak expert, it will be a 'bottoms-up stock pickers' market, rather than a top-down allocation.

According to the market analyst, the GST rationalisation process can serve multiple purposes, much like "one stone and multiple hits". First of all, the reforms will reduce the complexities around GST, and one or two tax rates will be more beneficial to consumers than multiple ones.

"Secondly, the GST rate cuts will likely stimulate the domestic economy by supporting consumption. Third, the stimulation will also help in negating the adverse effects of US tariffs, so timing-wise, it is appropriate," said Shah.

Shah explained that if the GST rationalisation stimulates the domestic consumption, it will also support the country's private investment revival. So, according to the expert, GST rationalisation should aim to achieve multiple objectives with one stone. Shah eyes an uptick in private capex soon; however, the trend has been subdued in the past several months.

"All catalysts for private investment are in place, such as ease of doing business, liquidity in the banking system, equity markets at all-time levels with enough capital in IPO and OFS markets, and capacity utilisationover 75%." The spurt in demand can result in more capex and could induce private investment revival, according to the market expert.

Coming to whether GST 2.0 will be able to offset the impact of US tariffs, Shah believes that GST rationalisation is a step ''in the right direction''. But coming out of the adverse impact of tariffs will require "multiple steps".

"Firstly, India needs to become truly 'Atmanirbhar' in new-age technology as well as research and development. There are few things which are easily doable, such as data localisation, but few other things will take a five- or 10-year roadmap. Secondly, ease of doing business needs to improve," said Shah.