Indian stock market benchmarks traded with decent gains on Tuesday (September 2), rising for the second consecutive session, as sentiment stayed upbeat on the back of healthy domestic macro data, expectations of a US Fed rate cut, and optimism that GST rationalisation will boost consumption and accelerate India’s economic growth.
The Sensex has gained over 900 points in two days, while the Nifty 50 has reclaimed the 24,700 level. Around 11 AM on Tuesday, the Sensex was 355 points, or 0.44 per cent, up at 80,719, while the Nifty 50 was 114 points, or 0.46 per cent, up at 24,739.
Why is the Indian stock market rising?
There are four key factors that seem to be behind the rise in the Indian stock market:
1. Strong macro boost
The fresh positivity in the domestic market can be attributed to India’s strong Q1FY26 GDP numbers, which clocked a 7.8 per cent in the June quarter from 7.4 per cent in the previous three-month period.
On the other hand, the country’s manufacturing activity expanded at its fastest pace in over 17 years in August, driven by stronger alignment between supply and demand.
The goods and services tax (GST) in August stood at ₹1.86 trillion, up 6.5 per cent year-on-year.
The outlook for economic growth remains strong, supported by lower inflation, a healthy monsoon, prospects of further RBI rate cuts, and expectations of increased consumption driven by income tax relief and GST rationalisation.
“India’s Q1 GDP growth of 7.8 per cent, exceeding projections, has reinforced investor confidence in the economy’s resilience amid global uncertainties. Expectations of GST rationalisation at the upcoming council meeting continue to bolster sentiment, supporting discretionary consumption,” said Vinod Nair, Head of Research, Geojit Investments Limited.
According to a report by the Bank of Baroda, India’s economy is projected to expand by 6.5 per cent in FY26, driven by steady domestic momentum.
2. Optimism ahead of GST council meeting
The eyes are on the GST Council, chaired by Finance Minister Nirmala Sitharaman, meeting on September 3-4, which may clear the way for moving to a two-slab taxation of 5 and 18 per cent.
“The next trigger is GST 2.0, with the final contours expected on September 5. We see this as a major growth catalyst,” said brokerage firm Emkay Global.
According to Kotak Securities, the proposed GST rates rationalisation could potentially boost demand for certain consumption items with low fiscal impact.
However, Kotak underscored that the impact of potential lower GST rates on demand of goods or profitability of companies will depend on the extent of pass-through by companies.
“Previous such tax cuts to boost consumption or investment have not had the desired outcomes,” said Kotak.
3. US Fed rate cut hopes
The US Fed is expected to cut rates by 25 bps in September which is seen as a key positive for emerging markets like India. Fed rate cuts could weaken the dollar and bond yields in the US, which can potentially prompt foreign institutional investors (FIIs) change their stance on India.
According to Reuters, the CME FedWatch tool suggests the market is pricing in a 90 per cent chance of a 25-basis-point rate cut by the US Fed on September 17.
FIIs have been aggressively selling Indian stocks in the cash segment since July amid weak earnings and stretched valuations of the Indian stock market. Notably, FIIs have sold off Indian stocks worth ₹96,000 crore in the cash segment since July till September 1.
4. Market takes note of India’s diplomatic overtures
US President Donald Trump’s 50 per cent tariff blow created some panic in India, but calm seems to be returning to the Indian market due to India’s diplomatic overtures.
Prime Minister Narendra Modi met with Russian President Vladimir Putin and Chinese President Xi Jinping at the Shanghai Cooperation Organisation (SCO) summit in China.
Experts see it as a positive signal at a time when concerns over US tariffs are mounting.
Meanwhile, India so far has refrained from adopting a retaliatory stance against the US, which indicates that the gates for negotiations and a potential deal between India and the US are open.
Is the Trump tariff fear over?
At this juncture, the market seems to be hoping that US tariffs will be lifted soon.
Economists say US tariffs may impact Indian GDP by only 50-60 bps, which can be managed by exploring other export avenues and other sector-specific reforms.
“US tariffs are painful, but the domestic market has already fairly discounted it because India’s GDP growth could only be impacted by 50-60 bps, which the market seems to have factored in,” said G Chokkalingam, the founder and head of research at Equinomics Research Private Limited.
But some experts caution that Indian stock market may be downplaying the tariff risk. While key sectors like pharma and IT services are exempt from US tariffs, a further deterioration in India-US relations could be a major negative for the domestic economy and markets.
At this juncture, it cannot be said that concerns over Trump’s tariffs are behind us. The market may be focusing on domestic macro factors and other positive triggers, but US tariffs remain a concern to reckon with.
“Global geopolitics and power equations are changing at a fast and furious pace. India-US relations have deteriorated, and normalcy appears difficult in the near future. More actions from the unpredictable US administration are likely. The consequences on the Indian economy and markets cannot be ascertained now. Investors should wait and watch for developments to unfold,” said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
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