Ajay Bagga says GST tax cuts could spark market rebound, boost demand

Market expert Ajay Bagga believes Indian markets may have already bottomed out and could be poised for recovery despite recent weakness. He noted that Q1 downgrades were among the lowest in eight quarters, suggesting resilience. While the March quarter was initially expected to mark the cycle’s bottom, fresh signals indicate green shoots are emerging.

The key catalyst, he emphasized, could be the upcoming GST Council meeting.

“See, if you look at the overall Indian economy, about 180 lakh crores is our consumption basket, out of which about 150 lakh crores is the taxable part. Now, if we get a 4-5% consumption tax cut on that by end of this month and that leaves about six months in the year, you could see a boost of about one lakh crores in consumption and that sets off a virtuous cycle because as people have more money in their pocket, they can either save, invest, or they can consume. Mostly it will go into consumption,” he told ET Now in an interview.

On the rupee’s record low on Friday, Bagga explained that the Reserve Bank of India (RBI) did not intervene this time, unlike earlier in the week when it supported the currency. The weakness, he said, was largely due to month-end dollar demand, oil payment settlements, and the upcoming US Labor Day holiday, which caused a bunching up of transactions. With Wednesday being a holiday in India, RBI stayed out, allowing the market to find its own level.

“It was more a case of RBI letting the market find its level, but RBI will have some level in mind and you will see bank intervention coming back. Monday, Tuesday they did; today that intervention was lacking and because of very strong dollar demand mostly because of the oil payments and month end and the US holiday, all that bunched up, otherwise we have been able to absorb this Rs 2,000-6,000 crores of selling in FIIs and secondary market,” he said.

He also highlighted the broader geopolitical angle, noting that currency depreciation is often used as a response to tariff wars. Allowing the rupee to fall by 3–5% could help offset tariff pressures, a strategy similar to what was observed in 2019.

Bagga added that India must also closely track the actions of other emerging markets. For instance, China has occasionally intervened to catch short-sellers and stabilize its currency.

On the surge in gold and silver prices, Bagga explained that investors are moving away from the US dollar, which has lost its appeal due to policy uncertainty under President Donald Trump.

Another key driver is the US Federal Reserve’s anticipated rate cut on September 17, which markets have already priced in.

With inflation expected near 2.9%, lower interest rates make non-yielding assets like gold and silver more attractive. Additionally, central banks worldwide are steadily diversifying away from the dollar by increasing gold reserves, further boosting demand, he said.

On the domestic front, Bagga highlighted the strengthening consumption theme in India following Prime Minister Narendra Modi’s GST announcements. Fast-moving consumer goods (FMCG) companies, though expensive at 40–50 times valuations, remain attractive due to their high returns, negative working capital models, and consistent cash flows.

While volumes had stagnated in the past two years, signs of revival are evident. Rural India, supported by increased liquidity in household pockets, is driving strong demand, while urban consumption—previously lagging—is set to gain momentum from GST-related tax cuts. Bagga estimated that a 3–4% cut on India’s Rs 150 lakh crore taxable consumption base could inject significant purchasing power, reinforcing a virtuous cycle of growth.

“With the GST cut, that consumer class of 12-14 crores at the top end, they will get a big boost and these companies will really get a boost. As I said, the whole picture is about 150 lakh crores getting a 3% to 4% tax cut which plays out over the next six months in terms of consumption. But you could see that as this is orchestrated along with the start of Navaratri, then Diwali…” he said.

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