In light of the market's lukewarm response to GST reforms, Complete Circle's Managing Partner and Chief Investment Officer, Gurmeet Chadha, believes investors are cautious until the impact is evident in corporate earnings.
“I think there's a bit of disbelief in terms of GST cuts getting reflected into earnings,” he said. “I think the market would want at least one quarter of double-digit earnings growth, and that's when it will become broad-based.”
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The benchmark indices have reacted mildly since the government announced sweeping reforms to GST rates, bringing down taxes on most daily consumer goods, among other things.
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The move is expected to give a major boost to consumption and bring back liquidity in the market.
However, the Nifty has surged just over 1.5% since the GST cuts were announced on Sept. 3. In one month, the benchmark has moved up just a little over half a percent.
Gurmeet Chadha noted that the underperformance of heavyweight stocks has kept the market subdued despite the positive policy implementations.
“Look at Reliance, HDFC, ICICI and ITC, which comprise one-third of the index. They haven't done anything, and that's where we are seeing the index struggling,” he said.
Market watchers suggest the GST cuts will serve as a relief for consumers and lift demand in key sectors such as FMCG, automobiles and discretionary spending. But for now, traders appear reluctant to price in a fully-fledged recovery and are waiting for corporate earnings to reflect these benefits.
The coming quarters, therefore, could be crucial as investors look to gauge the market sentiment and assess the corporate earnings trajectory and whether or not it will reach double-digit growth in the near future.
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