Stock market investors resorted to profit booking at higher levels on Thursday as benchmark indices erased early gains triggered by the GST rate rationalisation announced by finance minister Nirmala Sitharaman on Wednesday.
The Sensex, after opening strong at 81,456.67 — nearly 900 points or 1.10% higher — ended the day with a marginal gain of 150.30 points, or 0.19%, at 80,718.01. Similarly, the Nifty gave up nearly 250 points of intraday gains and closed at 24,734.30, up just 19.25 points, or 0.08%.
‘Sell-on-News’ phenomenon
It appears investors adopted a “sell-on-news” strategy, as many consumption-driven sectors such as auto, consumer durables, consumer discretionary, FMCG, and metals had already rallied since Prime Minister Narendra Modi’s Independence Day speech, where he hinted at GST reforms.
Outperforming the benchmarks by wide margins since August 15, the auto sector has gained 7.8%, consumer durables 5.6%, consumer discretionary 5.3%, FMCG 4.2%, and metals 4.1% on expectations of GST rate cuts. Shares of companies such as Maruti Suzuki, which jumped 13.43% during the recent rally, came under heavy selling pressure, as a result of which it fell 1.78% to `14,655.65 on Thursday.
The Sensex and the Nifty rose by 1.74% and 1.84%, respectively, in the four trading sessions following the August 15 announcement, though they later gave up gains due to the impact of US tariff measures.
Economic Optimism vs. Market Reality
The GST Council simplified the tax structure, agreeing to two slabs of 5% and 18% versus the earlier four-tier system. The new rates will come into effect from September 22, except for certain items such as cigarettes and tobacco. The reduction in taxes on a wide range of daily-use items is expected to revive festive demand.
“These reforms have come at the right time, as consumption has been muted for several quarters due to inflation and weak demand,” an expert said. By putting more disposable income in people’s hands, GST 2.0 can reignite consumption and trigger a multiplier effect across the economy, the expert added.
“It makes the system simpler and fairer,” said Pranav Haridasan, MD & CEO, Axis Securities.
“The GST cuts have been announced quickly and with a sense of urgency to boost festive season demand. History shows such measures add significantly to GDP growth, and a repeat is expected,” said Nitin Rao, CEO, InCred Wealth.
The reforms could unlock a strong wave of domestic demand, with the potential to add 100–120 basis points to GDP growth over the next 4-6 quarters, said Vikram Kasat, head – advisory, PL Capital.
The market breadth was negative on Thursday, with 2,325 losers against 1,809 gainers on the BSE. The broader indices, BSE Midcap and BSE Smallcap, declined 0.60% each, underperforming the benchmarks. Foreign institutional investors sold shares worth ₹106.34 crore, while domestic institutional investors purchased shares worth ₹2,233.09 crore, as per provisional BSE data.
Investors’ wealth fell by `1.58 lakh crore to `451.28 lakh crore.
Among the Sensex stocks, M&M, Bajaj Finance, Bajaj Finserv, Trent, and ITC were the top gainers, rising up to 5.96%, while Maruti Suzuki, BEL, HCL Tech, NTPC, and Power Grid were the top laggards, slipping up to 1.78%.
Insurance stocks declined on input tax credit concerns, with Niva Bupa Health falling 4.53% intraday, Max Financial 4.10%, HDFC Life 3.41%, Star Health 2.43%, and SBI Life 2.13%.