Ratings upgrade, GST reforms & the likelihood of reduction in geopolitical risks are positives for Indian markets

Since last year – July 2024, India‘s benchmark indices have underperformed the global index, declining 0.5% on an annual basis (July 2024–July 2025), while US and other international markets posted substantial gains over the same period.

The correction has been more severe in mid- and small-cap stocks, with FIIs pulling out substantial capital from our markets.

Main reasons for underperformance include stretched valuations, weak earnings, FII outflows, rising US bond yields, and concerns over the economic slowdown in India.

Indian equities are now positioned for positive momentum driven by the historic S&P ratings upgrade, upcoming GST reforms, and potential geopolitical stability from the Trump-Putin summit discussions.

The landmark ratings upgrade after 18 years signals enhanced investor confidence and could trigger sustained foreign inflows into Indian markets.

Next-generation GST reforms expected by Diwali will streamline tax structures and boost consumption-driven sectors significantly.

Geopolitical developments, particularly potential ceasefire talks between Russia and Ukraine following Trump-Putin engagement, could reduce global risk-off sentiment.

Foreign Portfolio Investors currently hold sizeable short positions, creating potential for a sharp short covering rally.

Auto, Consumer Durables, and FMCG sectors are positioned to benefit directly from GST rate rationalisation and improved consumption patterns. Bank Nifty presents compelling opportunities given the positive ratings impact on sovereign and corporate credit profiles.

The confluence of domestic reforms and global stability factors creates a constructive setup for Indian markets despite near-term technical resistance.

Nifty is likely to encounter an immediate resistance around 25000 levels, where we have seen aggressive call writing in the weekly expiry, followed by 25200-25300 levels. Any close below 24500 levels would result in further unwinding of long positions, which might drag Nifty to 24000-24200 levels.

Indian markets are expected to open with a 1% gap-up today and are likely to build further on that due to short covering.

Disclaimer : This content is only for informational purpose. It does not make any recommendation to act or invest. To get any error corrected, please write to content@hdfcsec.com.

Source: HDFC Securities Prime Research