ETMarkets Smart Talk - GST rationalisation a game-changer for consumption, says Anil Rego
In this edition of ETMarkets Smart Talk, Anil Rego, Founder and Fund Manager at Right Horizons PMS, shares his views on how
GST
rationalisation could unlock consumption growth, the impact of India's rating upgrade on foreign capital flows, and the sectors best positioned to ride the next wave of opportunity. Edited Excerpts –
Q) How are you seeing this potential GST rationalisation which could be growth accretive. Which sectors are better placed to ride the momentum?
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A) We view this GST rationalization as a game-changer for consumption-driven growth in India. The move from four slabs to essentially two main brackets will put more money back into consumers' pockets, which we believe will translate into stronger demand across multiple sectors.
We're particularly bullish on consumer staples, automobiles, and retail sectors as these industries will directly benefit from increased purchasing power and improved business compliance efficiency.
Our portfolio strategy has been positioning for such structural reforms, and we expect this will drive a sustainable earnings upgrade cycle for consumption-oriented sectors over the next 12-18 months.
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Q) What changes can fixed income investors expect in foreign capital flows into India's debt market after this upgrade?
A) The S&P upgrade to 'BBB' from 'BBB-' will likely accelerate foreign capital inflows into India's debt market, as the upgrade reaffirms trust in India's sound fundamentals and growth momentum.
We can expect higher
FPI
inflows this year with an immediate decline in bond yields, as evidenced by the 8 basis points drop in 10-year G-sec yields right after the upgrade announcement.
The upgrade enhances India's attractiveness for global fixed income investors who were previously constrained by the lower BBB- rating, potentially opening doors to more passive index funds and institutional mandates.
This will also lower borrowing costs for both government and corporates, creating a more favourable environment for debt market participants.
Q) Could improve ratings prompt a strategic reallocation from debt to equity among global asset managers, and which sectors might absorb this shift?
A) The upgrade brings India on par with Indonesia and Mexico within the investment grade universe.
Global asset managers will likely increase their India allocation within emerging market portfolios, with
infrastructure
, manufacturing, and financial services absorbing the bulk of incremental flows.
The reallocation will favour sectors aligned with India's structural growth story rather than purely yield-driven debt strategies.
Q) Which sectors are expected to benefit most from the rating upgrade?
A) • Infrastructure, capital goods, and PSU stocks will be immediate beneficiaries as their offshore borrowing costs decline significantly. S&P specifically cited strong infrastructure investment as supporting India's long-term growth.
• Banking and financial services will benefit from improved funding costs and credit growth.
• Manufacturing and export-oriented sectors will gain from the currency stability and lower financing costs that typically follow rating upgrades.
Q) What is your take on the June quarter results for India Inc.? Are managements more confident about the future amid tariff threats?
A) June quarter results showed resilient earnings growth despite global headwinds, and we've seen managements expressing cautious optimism about domestic demand in our interactions.
The rating upgrade validates that
Trump
tariff impacts should be manageable given India's fundamental strength, which aligns with our investment thesis.
From our discussions with corporate leaders, they're focusing on domestic consumption and infrastructure capex rather than export dependency.
Our confidence in India's structural story stems from the same advantages managements cite - young demographics, digitization, and policy continuity.
Q) Where is the smart money moving? We are seeing selling by FIIs and DII/institutional and retail investors doing much of the heavy lifting.
A) The
FII
selling has been primarily due to attractive valuations in other markets and dollar strength, not India-specific concerns. DIIs and retail investors have been opportunistic buyers, recognizing long-term value.
The recent rating upgrade should reverse FII sentiment as India becomes a more compelling investment destination.
Smart money is rotating into domestic cyclicals, infrastructure plays, and quality mid-caps with strong fundamentals.
Q) How can one earn or get financial freedom say at the age of 50 by investing in equity or equity related instruments?
A) Start with 75-80% equity allocation in your 30s, focusing on direct equity investments in quality large caps alongside systematic investment plans in mutual funds.
Our approach recommends diversifying across sectors through both direct stock picking and equity funds - growth, value, and thematic strategies.
Consider equity-linked savings schemes for tax efficiency while building wealth, but don't ignore direct equity opportunities in fundamentally strong companies.
The key is staying invested for 15-20 years through market cycles, reinvesting dividends from both direct equity and funds, gradually shifting to 60% equity allocation as you approach 50.
Q) Any implication from the US-Russia summit which investors should be keep an eye on?
A) Putin's diplomatic rehabilitation - being welcomed back "from the cold" with red carpet treatment - signals potential easing of western isolation but without immediate sanctions relief.
For markets, the lack of Ukraine war resolution means continued commodity price volatility and geopolitical risk premiums. However, India's recent sovereign rating upgrade provides insulation from these external uncertainties, making domestic fundamentals more relevant for investment decisions.
Q) US market hit fresh highs, Bitcoin too hit fresh highs – where are we stuck?
A) Indian markets aren't "stuck" but are consolidating after significant gains, which is healthy. The rating upgrade provides fresh catalyst for the next leg of growth.
Unlike Bitcoin's speculative surge or US markets driven by AI euphoria, Indian markets are backed by real economic growth and earnings expansion.
Our market leadership will come from sustainable factors - domestic consumption, infrastructure spending, and manufacturing growth rather than speculative themes.
Q) Any sectors which investors should keep on their radar?
A) The market outlook supports a selective sectoral approach, focusing on areas with strong earnings visibility, structural tailwinds, and valuation comfort.
1. Financials (Banks & NBFCs):
• Banks remain structurally positive, with asset quality stabilizing and credit demand holding up. Margins may have peaked, but lower funding costs from
RBI
rate cuts should aid profitability from H2FY26.
• NBFCs, especially in retail lending, gold loans, and vehicle finance, are expected to benefit from improved liquidity and demand recovery. Funding diversification and strong disbursement momentum support their outlook.
2. Capital Goods & Infrastructure:
• Public and private capex revival, strong order books, and government focus on infrastructure make this sector attractive.
• Execution momentum is visible across electrification, construction equipment, and engineering segments, backed by rising investments and policy incentives.
3. Defence:
• A structural growth story driven by indigenous procurement (92% of contracts awarded to Indian firms), record exports, and rising capex allocation.
• Private players are gaining traction alongside DPSUs, supported by a ₹40,000 crore emergency procurement push.
4. Healthcare & Hospitals:
• Hospitals are showing robust growth in profitability, ARPOB, and occupancy rates. Expansion into Tier-2 cities and medical tourism potential offer multi-year tailwinds.
• Diagnostics and digital health initiatives continue to support earnings resilience.
5. Consumer Discretionary:
• Urban consumption remains healthy, aided by premiumization and easing input costs. Value fashion, QSRs, electronics, and jewellery segments are doing well.
• Tax relief and rural revival could further aid demand in H2FY26.
6. Electronics Manufacturing Services (EMS):
• EMS firms are benefitting from PLI schemes, China+1 diversification, and rising demand for domestic electronics.
• Strong capex, growing order books, and operating leverage suggest continued double-digit growth.
7.
Wealth Management
:
• The Indian wealth management sector is at a pivotal inflection point, driven by the rapid rise of HNIs and Ultra HNIs. Financial assets held by these segments are projected to grow from USD 1.2 trillion in 2023 to USD 2.2 trillion by 2028, reflecting strong wealth creation and rising financialization of assets.
• Yet, only 15% of India's financial wealth is professionally managed, compared to ~75% in developed markets. This vast gap presents a structural opportunity for PMS, AIFs, and advisory platforms to expand.
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