GST 2.0 and Trade Tensions: A Balancing Act for India Inc

India’s corporate earnings could face some turbulence this quarter as two major developments shape the business landscape — the government’s plan to revamp the Goods and Services Tax (GST) and renewed unease in global trade. Both may weigh on near-term growth, but the underlying signals point to a stronger second half of the financial year.

GST Overhaul Puts Consumption on Pause

The Centre’s proposal to simplify the GST system under a new “GST 2.0” framework has triggered cautious optimism. The move aims to collapse the existing multi-rate structure into two key slabs — five percent and 18 percent — along with a higher rate for sin goods. While the reform is expected to make compliance easier and boost efficiency, the timing of the rollout remains uncertain.

That uncertainty is already influencing consumer behaviour. Shoppers appear to be delaying high-value purchases in the hope of lower taxes, hitting sales of automobiles, home appliances, and other discretionary items just ahead of the festive season. For companies that depend on the September quarter for a large part of their annual sales, that pause could pinch.

Analysts, however, see this as a temporary setback. Once the new GST rates take effect, pent-up demand is likely to kick in, helping sales rebound. A lower tax rate on select categories would immediately lift affordability and volumes. The auto sector could be among the biggest beneficiaries, especially in entry-level cars and two-wheelers where even small price cuts make a big difference. Commercial vehicles and tractors might also gain from lower on-road costs, encouraging fleet replacements.

For consumer-durables makers, the situation is a little trickier. Many companies are still carrying unsold inventory from the summer months, particularly in air-cooling and refrigeration products. Any further slowdown could pressure distributors. Larger players may absorb short-term margin pain through discounts to protect market share, but smaller firms could struggle with credit and liquidity. Over time, though, a simpler GST regime should help revive demand once the transition dust settles.

Festive Buying in a Holding Pattern

The potential delay in purchases has forced retailers to rethink inventory and marketing plans. The festival period is traditionally the strongest quarter for fast-moving consumer goods and electronics, and any postponement can disrupt cash flows across the supply chain. Bigger companies with stronger balance sheets may cope better by pushing quicker-moving products or adjusting prices. Smaller firms, which depend heavily on festive sales to manage working capital, are more vulnerable.

Even so, the longer-term view remains constructive. A leaner tax framework could streamline operations, lift consumption once prices reset, and eventually reflect in better margins and cash flows for organized players.

Global Trade Crosscurrents

While domestic reform takes centre stage, the external environment is turning more complicated. The global trade landscape has once again been unsettled by a renewed tariff confrontation between the world’s two largest economies. Both sides have traded threats of higher import duties and tighter export controls, especially around advanced technology and critical materials.

For India, the ripple effects are mixed. On one hand, restrictions on Chinese exports could open up opportunities for Indian manufacturers. On the other, Beijing’s curbs on key minerals and chemicals threaten to squeeze supply chains in electric vehicles, batteries, and fertilizers. At the same time, India’s incentive schemes to boost local manufacturing have drawn scrutiny from trading partners, adding another layer of uncertainty.

New trade talks with major partners, however, offer a potential offset. Efforts to negotiate lower tariffs on Indian exports could improve competitiveness and provide relief for sectors like textiles, automobiles, and light engineering. If successful, such agreements could also help India attract investment that might otherwise have gone to other emerging markets.

Markets Look Beyond the Noise

Despite the near-term jitters, domestic equity markets have held up well, staying close to record highs. Investors seem willing to look past temporary earnings pressure, betting on a broader recovery once policy clarity emerges. Foreign investors, who had turned cautious earlier in the year, have trimmed their bearish positions, suggesting a slow return of confidence.

Still, it would be premature to assume smooth sailing. Much depends on when the GST changes actually come through and how global trade negotiations unfold. Export-oriented sectors may see bouts of volatility until external conditions stabilise, while consumption recovery will hinge on how quickly lower prices translate into actual demand.

A Transition, Not a Turnaround

The next few months are likely to test patience rather than conviction. Companies across sectors may see a temporary dip in earnings as households defer purchases and trade frictions keep investors wary. Yet these adjustments could set the stage for a stronger rebound later in the fiscal year.

Simplifying GST, encouraging domestic manufacturing, and forging new trade partnerships are long-term positives that could boost competitiveness and growth. Once the short-term disruptions fade, India could emerge from this transition phase more resilient, with cleaner tax compliance, better pricing efficiency, and healthier demand.

For now, India Inc faces a balancing act — managing slower consumption and navigating global uncertainty — but the groundwork being laid today could well power the next leg of its growth story.

Market this week

Source: BSE and NSE

• Indian equities began the new Samvat year on a strong footing, with benchmark indices touching fresh 52-week highs during the week.
• The rally was supported by optimism around a potential India–US trade agreement, sustained foreign inflows, and a broadly positive second-quarter earnings season.
• Sector-wise, IT led the gains with a 3% rise, followed by PSU Banks (+2%), Metals (+1.5%), Media (+1.3%), and Oil & Gas (+1%).
• In contrast, FMCG and Auto indices slipped 0.5% each, reflecting selective profit-taking.
• On the flows front, Foreign Institutional Investors (FIIs) turned net buyers, purchasing equities worth ₹342.74 crore, while Domestic Institutional Investors (DIIs) extended their buying streak to the 27th consecutive week, adding ₹5,945.31 crore worth of stocks.

Weekly Leaderboard

Source: BSE

Stocks that made the news this week:

Metals Rally on Global Trade Optimism

Metal stocks surged on October 24, defying the broader market weakness, as global prices climbed on renewed optimism surrounding trade talks between the United States and China. The Nifty Metal index advanced over 1 percent to close at 10,347.45. Prices of key industrial metals such as aluminium and copper spiked on the London Metal Exchange, driven by expectations of monetary easing and fresh supply concerns after a major smelter in Iceland halted production. The White House’s confirmation that the U.S. and Chinese presidents will meet later this month in South Korea further fueled hopes of easing trade tensions, boosting sentiment across global commodity markets.

Tata Motors Completes Passenger Vehicle Demerger

Tata Motors has officially rebranded itself as Tata Motors Passenger Vehicles following the completion of its commercial vehicle business demerger. The new entity now trades under the scrip ID ‘TMPV’. The company had earlier fixed October 14 as the record date for eligible shareholders, who will receive one share of the demerged TML Commercial Vehicles Ltd for every Tata Motors share held. The demerger became effective from October 1, with trading in the new entity expected to commence in November. The move marks a strategic restructuring aimed at unlocking value and allowing focused growth in both the passenger and commercial vehicle segments.

Bharat Forge Gains on Army Order Qualification

Shares of Bharat Forge climbed over 4 percent after the company announced it had been declared the lowest bidder for a major Indian Army weapons contract. The firm qualified to supply 60 percent of the 4.25 lakh carbines under the Army’s Close Quarters Battle (CQB) programme, following extensive testing and evaluation. While the contract is yet to be signed, the development signals a significant milestone for the company’s defence manufacturing ambitions. Separately, Bharat Forge also strengthened its global footprint through a pact with Rolls-Royce to manufacture and supply fan blades for its next-generation Pearl series aircraft engines.