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Informist, Tuesday, Sept. 2, 2025

 

By Anjana Therese Antony

 

MUMBAI – The Indian equity market, once a global leader in terms of returns, has recently lost its glory and is expected to make only marginal gains in September. This is particularly because foreign investors are shying away from investing in Indian equities due to the fog around tariffs, depreciation of the rupee, muted corporate earnings growth, and meagre returns from the market. While some experts continue to echo optimism about the stock market due to the proposed goods and services tax reforms and a likely pick-up in the government's capital expenditure in 2025-26 (Apr-Mar), a few others retain a cautious approach as the Indian market remains an underperformer compared to most global peers, a trend which is expected to continue for a few more months. 

 

"...having gone through many quarters of weak earnings, the base number (for the market) is quite moderate at this point," George P. Thomas, fund manager at Quantum Asset Management Co., said. From this base, it is not difficult to have a decent growth from a two-year perspective, Thomas said. In the first eight months of 2025, domestic benchmark indices, the Nifty 50 and BSE Sensex, rose merely 2-3%, underperforming most global peers such as China's CSI 300, Germany's DAX Performance, Hong Kong's Hang Seng, and South Korea's Kospi, which grew 14-33%. The US' headline indices Dow Jones Industrial Average and S&P 500 rose 7% and 10%, respectively, during this period. 

 

For September, support for the benchmark Nifty 50 is expected to be at 24150 points, according to the median of estimates from 11 broking firms. This is almost 2% lower than Tuesday's closing level of 24579.60 points and 8% lower than the record high of 26277.35 points hit in September last year. Factors that could limit the growth or lead to a fall in the domestic market in the near term include any negative surprise with respect to US tariffs, lower-than-expected festival demand, continuance of foreign outflows, and no major pick-up in the government's capital expenditure. 

 

However, market experts remain bullish over faster growth in the overall corporate earnings in the second half of FY26. They also hope to get some clarity about US tariffs in the coming months, particularly about the additional 25% tariffs imposed on India for its Russian crude oil purchases. The resistance for the index is seen at the psychologically important 25000 points, as per the median of estimates. This is nearly 2% higher than the spot level, but still 5% lower than the record high. 

 

GST REFORMS, TARIFFS

Market participants have divided views about the likely impact of the government's proposed GST reforms on the economy as well as corporate earnings growth. While some believe that these reforms will push demand in the near term and drive many sectors' revenue growth, another section remains bearish and believes that these reforms alone are not enough to push the financial growth of corporate India. The Group of Ministers on GST rate rationalisation had accepted the Centre's proposal to shift to a two-slab structure from current four-tier structure. 

 

The proposed GST reforms are expected to act as a "big catalyst" for domestic demand during the upcoming festival season, ICICI Securities said in its strategy report Monday. "However, if there are too many exceptions and exclusions for various products and services outside the simplified two-tier rate system, then it is likely to dilute the impact of the GST reform," the broking firm said. 

 

All eyes will be on the GST Council's 56th meeting on Wednesday and Thursday in Delhi. This is the Council's first meeting after Prime Minister Narendra Modi, during his Independence Day speech, proposed reducing the number of GST slabs to two from four. If approved, changes in the GST structure will likely help manufacturers who are currently feeling the heat of the 50% tariff on Indian goods entering the US. 

 

"There are only very few companies which would have a meaningful negative impact (due to tariffs) say, textile and gems and jewelry, but it will not have a very material impact from a broader perspective in the medium term," a strategist at a domestic broking firm said. Research analysts believe that India and the US will continue to hold trade talks and will strike a favourable deal. They also hope the additional 25% tariff on India will likely be removed by November. However, US President Donald Trump said Tuesday he was not looking to lower tariffs on India as the latter charges a high levy on US goods.

 

Foreign investors have been offloading domestic equities for two consecutive months due to uncertainties about tariffs, muted earnings growth, and the rupee's depreciation against the dollar. However, experts hope that foreign investors will start buying in the Indian market if the US Federal Reserve cuts the key interest rate at its upcoming meeting later this month. "If that happens, it will be a positive from a foreign inflow perspective," the head of research at a domestic broking firm said. 

 

Foreign investors were net sellers in four out of the last seven months after Trump announced tariffs on its key trading partners in February. During this period, foreign investors net offloaded shares worth more than INR 1.26 trillion.

 

BROADER MARKET

While the valuations of large-cap companies are widely believed to be reasonable, those of mid- and small-cap players remain expensive. India's broader market indices underperformed benchmark peers during Jan-Aug. "...a lot of small-cap funds have gone far beyond their capacity... If some kind of redemption cycle happens, then there is hope for a sharper correction in small- and mid-caps, but that redemption cycle is very hard to predict," Thomas of Quantum Asset said. 

 

While the headline indices rose in low single digits in Jan-Aug, broader market indices Nifty Midcap 100, Nifty Midcap 150, Nifty Smallcap 100, and Nifty Smallcap 250 fell 2-8%. In the year-ago period, these broader market indices had risen almost 30?ch, while the two benchmark indices had grown around 15% and had also outperformed most headline indices across the globe. 

 

The one-year forward price-to-earnings ratio of Nifty Midcap 100 is almost 27, that of Nifty Smallcap 100 is nearly 26, and that of the Nifty 50 is around 23, InCred Equities said in its strategy report Friday. These are higher than the long-period averages, analysts said. Last year, the Securities and Exchange Board of India had raised concerns about the "froth" in mid-cap and small-cap stocks. Many analysts, too, had then said the broader market's rally was not based on strong fundamentals. 

 

SECTORS

Analysts are optimistic about sectors such as private banks, information technology, and capital expenditure-led spaces such as cement and construction for the medium term. On the other hand, some analysts are bearish about capital goods stocks as their valuations do not justify the strong earnings growth.  

 

For the information technology sector, analysts believe that the worst is mostly behind them as the demand environment has not deteriorated as much as they expected at the beginning of the June quarter. Experts also believe that the valuation of large-cap IT stocks are at reasonable levels, particularly after their recent correction due to weak earnings and worries about US tariffs. The Nifty IT index fell almost 10% in Jul-Aug, erasing the near 9% rise in the previous two months. On the other hand, the US tech-heavy Nasdaq Composite index rose for the fifth consecutive month in August and rose almost 23% in this five-month period.

 

Experts also echoed optimism about private-sector banks, saying that these entities posted strong earnings growth as treasury gains offset the impact of lower net interest income. They also said valuations of most private-sector banks, particularly that of the large-cap players, are at reasonable levels. 

 

Market participants are also optimistic about sectors that are dependent on the government's capital expenditure, such as cement and engineering companies. There are expectations that the GST on cement will be reduced to 18% from the current 28%, which is expected to boost demand after the monsoon season. Shares of cement companies have been moving in a tight range due to muted demand because of the early onset of monsoon. However, cement analysts expect these stocks to rise post monsoon as construction activities and the government's capital expenditure are expected to pick up. 

 

DERIVATIVES

Some volatility is also expected due to the change in derivatives expiry day for the National Stock Exchange to Tuesday from Thursday after almost 25 years, which came into effect this month. The expiry day for the BSE has now been changed to Thursday from Tuesday. The change in derivatives expiry day of the NSE is expected to lead to some shift in trading to the NSE from BSE, derivatives analysts at various broking firms said.  

 

"So far, it will be too early to predict the overall change, but it should add somewhere close to 10-15% of additional index options volumes to NSE's kitty," Vipin Kumar, assistant vice president of equity research and senior derivatives analyst at Globe Capital Market, said. "For any actual impact, we need to wait for a few weeks as current change is just taking place."  

 

BSE had the benefit of higher derivatives volume due to its expiry on Tuesday as it had more number of days after the NSE contracts' expiry on Thursdays. Now, the stock exchange will get a fewer number of days--Wednesday and Thursday--after the NSE contracts' expiry. This is likely to lead to a fall in market shares in the derivatives space for BSE, analysts said.

 

Following are the support and resistance levels for the Nifty 50 index for September based on responses from 11 brokerages:

Broking Firm	Support 1	Support 2	Resistance 1	Resistance 2
Anand Rathi Shares and Stock Brokers	23500	--	25500	--
Angel One	24350	24100	24800	25200
Choice International	24000	23500	24750	25000
Globe Capital Market	24150	23900	25000	25150
HDFC Securities	24200	--	25500	--
IDBI Capital Markets & Securities	24000	23400	25000	25500
Indiacharts	24250	23900	25153	--
Lakshmishree Investment and Securities	24300	23900	24960	25144
NVS Brokerage	24400	24210	24750	24800
Religare Broking	23900	--	25500	--
BP Equities	24000	23800	25200	25500
Median	24150		25000

 

End

 

US$1 = INR 88.13

 

With inputs from Team Informist

Edited by Tanima Banerjee

 

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