Indian stocks are likely to open firm following a strong GDP growth report released after Friday’s market close. Yet, bulls will remain cautious due to concerns over US tariffs and their drag on the economy. The meeting between the Indian Prime Minister and China’s President Xi Jinping over the weekend will put the spotlight on companies with exposure to China. Traders will also be watching sectors likely to be affected by the tariffs, such as textiles.
- Jio debut plan
- Growth conundrum
- Textiles hardest hit
Reliance’s Jio IPO plan underwhelms
Billionaire Mukesh Ambani’s long-awaited announcement of an initial public offering of Reliance Industries’ telecom venture on Friday has dampened investor sentiment. The reason is simple: most investors had been hoping for a demerger of the telecom unit rather than an IPO. A spin off would have allowed existing shareholders of Reliance to escape the so-called holding company discount. With the telecom arm set to list in the first half of 2026, that discount — typically more than 20% — could likely weigh on Reliance’s valuation going forward. The stock closed at a four-month low on Friday.
India’s growth conundrum
A similar disconnect can be seen in the country’s macro data. Stronger-than-expected growth in GDP in the first quarter of fiscal 2026 has left many market participants scratching their heads. The key question: why didn’t this growth show up in corporate earnings? The answer lies in weak consumption. Nominal private consumption in the June quarter fell 1.8 percentage points, according to Citigroup Inc.’s economists — which is “more in sync with the market view of depressed demand.” Markets are forward-looking. With GDP growth likely to slow in the second half of FY26 due to a high base effect and the drag from US tariffs, investors are unlikely to recalibrate earnings expectations anytime soon.
Textile firms to be hit hardest by tariffs
The drag from tariffs is already showing up in specific industries. Local textile and apparel exporters face one of the steepest challenges, with the effective US levies rising to 62%-65%, according to Antique Stock Broking. The brokerage warns that the business will remain unviable until New Delhi strikes a trade deal with Washington. Policy support — such as GST cuts and extended exemptions on cotton import duty — provides little relief, while scope for shifting production bases overseas to bypass tariffs is limited. Arvind Ltd., which gets 38% of its revenue from the US, has been downgraded to sell, with its target price slashed to 330 rupees from 453 rupees.
The tariff overhang is also starting to weigh on global investor flows. A US-listed ETF tracking Indian equities saw its biggest monthly withdrawal since January, as worries mount over the impact of the 50% tariffs on the South Asian country’s growth. Rich valuations and slowing corporate profits are already putting off many investors. With risks far outweighing any potential catalysts, the ETF’s unitholders likely thought it prudent to lock in gains from a product that has delivered positive returns in five of the past six years.
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