A report notes that normal monsoons boosting rural incomes, lower inflation, and a fiscal boost from tax cuts are laying the foundation for this recovery
Led by multiple tailwinds that are likely to sustain beyond the festive season, conditions are ripe for a strong boost in domestic demand. A report has stated that lower inflation, normal monsoons boosting rural incomes, and a fiscal boost from tax cuts in the current fiscal year (FY26) are laying the foundation for this recovery.
In its India strategy Report titled ‘Ready for next leg of growth’, PL Capital emphasised that rhe momentum is expected to strengthen further in 2H26 with the transmission of the Reserve Bank of India’s (RBI) 100 basis points rate cuts, lowering equated monthly instalments (EMIs) and stimulating demand for housing, automobiles, and personal loans.
Complementing this, GST 2.0 reforms, which rationalise tax slabs and reduce prices across automobiles, durables, staples, and medicines, are poised to trigger broad-based consumption. The report emphasised that reviving consumption demand is critical to sustaining India’s growth trajectory.
Indian Markets Displaying Notable Resilience
The report highlights that Indian markets have displayed notable resilience, maintaining a largely flat trend since early July despite penal tariffs from the United States and Foreign Institutional Investor (FII) outflows of Rs 410 bn. Corporate earnings have been reasonable, with sales, Ebitda, and net profit broadly in line with expectations, deviating by just 2 per cent, 0.9 per cent, and -0.5 per cent respectively.
However, the fragile geopolitical environment and continued US tariff actions pose risks to global trade and GDP growth, as the full impact of higher import duties unfolds. Structural themes such as defence, infrastructure, EMS, hospitals, and power transmission remain intact, albeit with limited scope for further re-rating, the report noted.
Lower Prices To Boost Demand
The Government of India is preparing to roll out GST 2.0, the next phase of tax reform focused primarily on rate rationalisation. The report said that the most significant changes will come from the 12 per cent and 28 per cent slabs, which together contribute about 16 per cent of GST collections, while the 18 per cent slab, accounting for 67 per cent of revenues, will remain untouched.
Notably, items such as petrol, diesel, liquor, and electricity are unlikely to be brought under GST 2.0. Overall, this restructuring is expected to simplify the tax system, reduce classification disputes, and boost consumption by easing the tax burden on several everyday goods, as per the report.
PL Capital has maintained an overweight stance on banks, healthcare, consumer, telecom, auto, and capital Goods, while remaining underweight on IT services and commodities. PL Capital is expecting a revival in domestic consumption and has accordingly raised weights in automobiles and consumer, while trimming exposure to capital goods, healthcare, and banks, though these sectors continue to remain overweight.
