He highlights how FIIs are selectively moving away from largecaps into midcap and smallcap stocks, a trend that signals “smart money” is chasing growth opportunities in the Indian market.
Singh also delves into the potential impact of GST 2.0 reforms, the US Fed’s policy outlook, and emerging long-term wealth creation themes such as AI, semiconductors, and data centers. Edited Excerpts –
Q) What a swift rally we have seen in the second half of August. What is fuelling the rally on D-Street – GST reforms, trade pacts?
A) GST rationalisation is the most significant domestic factor fuelling the rally. The proposed changes includes moving it to a two slab structure likely 5% and 18% and potentially 40% for sin goods.
The expectation is that rate cuts particularly on everyday use items will boost consumption amongst the domestic economy. Hints of a September rate cut by US Fed Chairman in the recent Jackson hole symposium has also made outlook slightly optimistic for an emerging market like India.
Q) If GST reforms do kick in – do you see consumption as a basket to produce next set of wealth creators? Or are there more sectors?A) Domestic consumption sectors such as FMCG, Consumer Durables and Automobiles are expected to be the obvious winners from the GST reforms.
In FMCG a large number of household products are in 12% and 18% slabs which is expected to get shifted in 5% slab.Similarly, air conditioners are taxed at 28% and are expected to get moved to 18%. Also in automobiles for entry level cars and bikes GST rates are expected to reduce to 18% from 28%.Increased consumption is always linked with higher credit demand. Hence, Banks and NBFCs with strong focus on consumer lending will also see a boost in business.
Q) What is your take on Jackson Hole speech of US Fed – Jerome Powell? It is probably Jerome Powell last speech.A) Jerome Powell’s acknowledged that policy adjustment is warranted citing downside risk to employment and upside risk to inflation. The market is now pricing a rate cut as early as the September meeting.Tariffs according to him is expected to push inflation in US as a one-time event rather than persistent rise in inflation. Powell’s speech did sound as final act of statesmanship acknowledging difficult politically charged economic landscape.
However, the path going forward for US Fed will be data driven as it has always been.
Q) It is the first time where India got upgraded and we saw a downgrade of the US by Moody’s back in May. What does it suggest?A) It is a powerful and rare divergence in the global economic landscape which signals changing order in global finance in the long run. US downgrade from AAA to AA1 was on account of persistent increase in government debt and interest payment ratios being significantly higher than similarly rated sovereigns.
This shows that US long term fiscal health can be in doldrums. On the other hand, India got its first upgrade in nearly two decades to BBB. India’s upgrade was driven by strong economic growth and fiscal consolidation.
This shows India’s long-term fundamentals are improving and policy making is much more reliable and credible.
Q) Which sectors which one should look at amid GST reforms, trade talks etc.A) In the coming months, the GST 2.0 reforms are likely to be significant in nature, aimed at simplifying the existing while at the same time, unifying the existing tax slabs (from currently four to two or three) with many items expected to be shifted to the 5%-18% range from the current 12%-28%, so as to stimulate consumption.
This is positive for consumer discretionary, autos, durables, textiles, apparel and footwear, renewable energy and clean tech, chemicals, hotels & tourism, logistics, further acting as a sentiment booster for FMCG and retail sector as it reduces litigation and tax complexity.Q) Do you think there are sector(s) in which the story is already played and one can look at bringing down their exposure?A) Many sectors have no doubt witnessed a decent rally over the past few months including autos, financials, FMCG, New Age & Healthcare, and the recent announcements with regard to rationalization of GST tax slabs in the near future, provided an added impetus to the markets as a whole.
However, the TRUMP tariff fears still loom over the markets and there does not appear to be any resolution in near sight.
Q) How should one play the small & midcap space?A) Both the midcap and the small cap space have witnessed a sharp rally over the past few months, with the benchmark midcap and small cap indices gaining between 18%-20% since the March lows.
Many stocks across both these segments, have created significant wealth for their shareholders, and it would be wise and at the same time prudent, to book part profits, and hold the rest for a long-term perspective.However, one should not get carried away by the recent euphoria as valuations in some cases are on the higher side, and when these two segments witness a correction, that generally tends to be quite severe. So, it has to be a calibrated approach while investing in this space.
Q) We are seeing FII money moving from largecap to small & midcaps? Can we say that smart money is targeting ‘growth’?A) We have been witnessing a strategic reallocation by FIIs, with net-selling in large cap and selectively increasing exposure to midcap and small cap segment.
Overall, FIIs have been consistent net sellers in 2025 till date, with outflows exceeding Rs.1.16 lakh crore. However, the interesting part is that FIIs have been showing interest in sector-specific opportunities, in small and midcaps.
And as we all know, that historically, midcaps and small cap have tended to outperform the large caps in bull markets, however one needs to bear in mind, that when correction comes, that’s nothing sort of brutal in these two categories.Q) Between value and growth, it looks like growth stocks will emerge as winners.A) True, the rotation and flow of money into midcap and small cap clearly indicate that this aligns with the smart-money targeting growth opportunities.
With GST 2.0 reforms in the near distance, low inflation, expecting improvement in Capex Cycle, and Fitch Ratings, affirming a BBB- sovereign rating for India with a view that strong record of delivering growth and at the same time, improving fiscal consolidation, and expectations of a likely US Fed Rate Cut later this year, all bode well for the markets.
This reflects optimism in the long-term growth stories, and being able to identify alpha generators, is what the game is all about in coming quarters.
Q) Any new theme which you think has the potential to turn into wealth creators in the next 5-10 years?A) India’s economic growth is expected to pick-up pace over the next 2 decades, potentially reaching $20 trillion – $20 trillion by 2047, offering immense opportunities for wealth creation.
One of the themes one can explore in greater detail is the AI, Data Centers & Semiconductor business, with India positioning itself as a chip hub, as an alternative to China.
These sectors could witness a CAGR of anywhere between 15%-25% over the next 5-10 years, creating a 10x-15x market expansion opportunity.
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