The post-Diwali period typically ushers optimism in Indian markets, and recent macro and policy signals
point to a constructive medium-term setup. While near-term volatility may persist, emerging trends that
point to the potential for strengthening momentum through FY26 are worth further exploration
GST Rate Cuts Boosting Consumption
The financial impact is likely to reflect in Q3 FY26 earnings, driven by stronger volumes and operating
leverage
- GST Rationalization: ₹48,000 crore (~$5.5 bn) revenue loss for the government is expected, but₹20 trillion consumption boost projected in FY26.
- Demand Revival: Diwali 2025 retail sales hit record ₹5.40 lakh crore and services ₹65,000 crore, up 25% YoY
- Discretionary Spending Lift: Autos (+15–35%), consumer durables (+25%), jewellery (silver
+50%; diamonds +15–30%), apparel & FMCG up double digits
Positive tilt in US-India tariff developments
Trade ties between the U.S. and India have been strained by 2025 tariff hikes of up to 50%, but a trade deal nearing completion could cut duties on Indian exports to ~15-16%
- Overall exports grew 6.7% YoY to $35.1 bn (up 9% in Q2 FY26), driven by electronics (+33.2%),
engineering, and marine goods (+23.4%) - U.S.-bound shipments fell 20.3% in September, reflecting tariff impact
A successful agreement would improve export visibility, ease geopolitical frictions, and lift sentiment
across export-linked sectors.
Cleaner valuations and potential FII (foreign institutional investor) re-engagement
- FIIs pulled out ₹20.4 lakh crore (~$230 bn) over the past 36 months, pressuring valuations.
- Recent turnaround: FIIs turned net-buyers and bought ₹12,002 crore in the last two weeks,
signaling a potential inflection point in flows. - Market-Cap-to-GDP: Despite a ratio of ~141.4% (vs ~222.8% for the U.S.), India retains ample
headroom supporting growth - Price/Earnings to Growth (PEG): India trades near ~1 vs ~1.9 for the U.S. and ~5.6 for China,
indicating that India’s valuations remain more reasonable when adjusted for earnings growth.
Valuations, while not inexpensive, have moderated meaningfully post time correction (P/E ~22x vs 24x in
Sep 2024), offering a more balanced setup compared to last year
Hybrid Funds Quietly Backing Equities
Hybrid and multi-asset funds are gradually increasing allocations to equities. With safe assets and
commodities near record highs (Gold ~+60% YTD, Silver ~+68% YTD), further entry opportunities remain
uncertain. These funds now manage ~₹10.08 lakh crore, holding ~20% in cash as deployable dry powder,
positioned to capitalize on market dips as momentum builds
In Conclusion
Emerging macro and policy trends suggest a foundation for improving sentiment and sustained
momentum into FY26, even amid near-term volatility. The message for investors is simple: stay invested, keep SIPs running, and use market swings as opportunities
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