Speaking to ET Now, Amthe said that while reforms like the GST cuts and an income tax reduction earlier this year are significant, overseas investors are waiting for concrete earnings growth before stepping up allocations.
At the sector level, he sees opportunities in autos, financials, and consumer discretionary plays that directly benefit from GST cuts. High-conviction names include Maruti Suzuki, Bajaj Auto, Bajaj Finance, Shriram Transport Finance, and packaging firm TCPL Packaging.
Why FIIs are on the sidelines
Foreign Institutional Investors (FIIs) have been persistent sellers through 2024, even as domestic institutions (DIIs) have absorbed much of that selling. Amthe pointed out that India’s earnings cycle has been weak for nearly a year, with analysts cutting profit forecasts by 1–3% in the recent quarter.“In contrast, global markets have seen positive earnings surprises and upgrades. When you add that to India’s valuations, which are already one standard deviation above the mean compared to Asia MSCI, FIIs prefer to wait. The GST cut gives hope, but earnings need to deliver before long-only FIIs return,” he explained.
He expects the current quarter to mark the bottoming out of earnings cuts, with the festive season offering potential for a sharp rebound.
Macros strong, high-frequency data weak
India’s macro indicators remain encouraging. Q1 GDP came in at 7.8%, global rating agencies upgraded India’s outlook, and now the government has delivered a major GST reform. However, Amthe noted that high-frequency indicators such as consumption data have yet to reflect this strength.“There is a contradiction,” he said. “Quarterly data shows resilience, but high-frequency numbers remain weak. The government recognises this and is taking action, but until these translate into earnings, markets will stay in a consolidation phase.”He added that India’s equity market performance has lagged globally. “Among 50 tracked countries, India is in the lower quartile of returns this year. To improve, we need to show earnings delivery that justifies current valuations,” Amthe said.
Prefer largecaps, select sector bets
Looking ahead to the next 6–8 months, Amthe recommends investors tilt towards largecap stocks over mid and smallcaps. He expects the benchmark indices to post only 3–4% upside by March 2025, suggesting a consolidating market rather than a runaway rally.
On IT and FMCG, InCred has turned more constructive. “We’ve added stocks like Wipro and LTTS, where valuations are comfortable, and upgraded HUL after a long time,” Amthe said. The brokerage has, however, exited Ethos, a luxury retail play, anticipating tougher regulatory action on high-end discretionary consumption.
Consumption and sin goods outlook
Consumption remains the clearest play on the GST cut, according to Amthe. “Segments with high demand elasticity—where even a small price cut drives large volumes—will benefit the most. Two-wheelers, entry-level discretionary goods, and white goods like air conditioners are well placed,” he said.
On the government’s latest move to impose a 40% tax on so-called sin goods, Amthe noted that the sector has long been targeted for revenue. “Some correction is visible, but companies in this space still offer relative value. Selectivity will be key,” he added.
For now, the market is caught between strong policy moves and weak earnings momentum. While reforms like the GST rate cut may eventually revive growth, FIIs will likely wait until corporate earnings show a clear turnaround. Until then, domestic investors and selective stock-picking will continue to drive Indian markets.
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