Foreign Institutional Investors (FIIs) continue to maintain a cautious stance on Indian equities, despite recent government initiatives such as GST rate rationalization, according to Pramod Amthe of InCred Capital. While these reforms, including GST cuts and income tax reductions, are significant, overseas investors are holding back, waiting for concrete evidence of earnings growth before increasing their allocations.

Persistent FII Selling

FIIs have been consistent sellers, a trend attributed to India's weak earnings cycle, which has persisted for nearly a year. Analysts have further dampened expectations by cutting profit forecasts by 1-3% in the recent quarter.

India's Market Performance Lags Globally

The cautious approach of FIIs is reflected in India's equity market performance, which has been underwhelming on a global scale. Among 50 countries tracked, India's market ranks in the lower quartile, highlighting the impact of reduced foreign investment.

Sector Opportunities Amid Reforms

Despite the overall caution, Amthe identifies potential opportunities in sectors benefiting from GST cuts:

• Autos
• Financials
• Consumer discretionary

Recommended stocks in these sectors include:

• Maruti Suzuki
• Bajaj Auto
• Bajaj Finance
• Shriram Transport Finance
• TCPL Packaging

Market Outlook and Strategy

InCred Capital's outlook for the Indian market remains conservative:

• Benchmark indices are expected to post only 3-4% upside by March 2025
• A tilt towards largecap stocks is recommended

Sector Shifts

InCred has adjusted its sector preferences:

• More constructive stance on IT and FMCG sectors
• Added Wipro and LTTS to their portfolio
• Upgraded HUL

Earnings Outlook

On a positive note, InCred expects the current quarter to mark the bottoming out of earnings cuts, potentially signaling a turning point for corporate profitability.

As the market navigates through these challenges, investors and analysts alike will be closely monitoring corporate earnings for signs of the anticipated growth that could reignite FII interest in Indian equities.

Shares of Bajaj Finance and Bajaj Finserv witnessed significant gains following the government's announcement of a Goods and Services Tax (GST) rate reduction on consumer durables. The tax cut, which lowers the GST rate from 28% to 18% on several household items, is expected to boost consumer demand and benefit companies in the consumer finance sector.

Market Response

Bajaj Finance shares jumped 5.80% to Rs 948.20, while Bajaj Finserv shares rose 3.50% to Rs 2,034.40. The strong market response reflects investor optimism about the potential impact of the GST rate cut on these companies' business prospects.

GST Rate Cut Details

The government has reduced the GST rate from 28% to 18% on the following consumer durables:

• Air conditioners
• Televisions above 32 inches
• Monitors
• Dishwashers

Expected Impact on Bajaj Finance

Bajaj Finance, a leader in consumer durable financing through zero-cost EMIs, is poised to benefit significantly from this tax reduction. The lower prices resulting from the GST cut are expected to:

1. Make EMIs more affordable for consumers
2. Drive higher loan disbursals for Bajaj Finance
3. Potentially increase the company's market share in consumer durable financing

Industry Outlook

Jefferies analysts have provided a positive outlook on the impact of the GST rate cut:

• Boost in volumes across affected product categories
• Clearance of channel inventory, particularly beneficial for air conditioners
• Act as a demand catalyst during the upcoming festive season

The air conditioning segment is expected to see particular benefits, as summer demand was disrupted, leaving retailers with significant unsold stock.

Bajaj Finserv's Potential Gains

Bajaj Finserv, the holding company for Bajaj Finance, is also positioned to benefit from this development. The company is expected to see increased cross-selling opportunities in:

• Protection products
• Extended warranty offerings

As consumer durables become more affordable, the demand for these additional financial products may also rise.

Conclusion

The GST rate cut on consumer durables has created a positive sentiment in the market, particularly for companies involved in consumer finance. Bajaj Finance and Bajaj Finserv's stock price increases reflect investor confidence in their ability to capitalize on the expected surge in consumer demand. As the festive season approaches, these companies are well-positioned to leverage the anticipated growth in the consumer durables market.