Indian Stocks Surge as Modi Unveils Tax Cuts Amid Trade Tensions

Indian stocks rallied, led by automakers and consumer goods, after Prime Minister Narendra Modi announced plans to lower taxes on everyday goods to offset potential US tariffs and boost consumption. Markets reopened with renewed momentum, buoyed by the government's tax-cut plan and S&P Global Ratings' upgrade of India's credit rating. The NSE Nifty 50 Index gained 1.6%, while benchmark 10-year yields climbed five basis points. The rupee strengthened against the dollar.

Indian stocks experienced a significant rally on Monday, July 2, 2025, as Prime Minister Narendra Modi announced plans to lower taxes on everyday goods. The NSE Nifty 50 Index surged by 1.6%, reaching 25,022, marking its biggest intraday gain in over three months. The broader measures of small and mid-sized firms also saw gains, led by automakers and consumer goods companies. The move is aimed at mitigating the potential impact of US tariffs and boosting domestic consumption [1].

The tax-cut plan, which includes simplifying the Goods and Services Tax (GST) structure to a two-rate system with most goods taxed at either 5% or 18%, is expected to be implemented around the Hindu festival of Diwali in October. The government anticipates this stimulus to have a limited effect on its fiscal deficit, focusing on affordable categories [2].

The market's renewed momentum was also bolstered by S&P Global Ratings' upgrade of India's credit rating. The absence of new tensions following weekend talks between President Donald Trump and Russian President Vladimir Putin also eased pressure on India. The recent decline in crude prices is expected to further improve India's trade balance after last month's wider deficit.

In fixed income markets, benchmark 10-year yields climbed by five basis points, reflecting traders' assessment of the potential fiscal impact of the government's tax-cut plan. The rupee strengthened against the dollar, trading 0.1% higher. The government's tax changes are anticipated to provide a significant boost to the economy without hurting its fiscal deficit, helping to offset the fallout from higher US tariffs [1].

References:
[1] https://www.bloomberg.com/news/articles/2025-08-18/indian-stocks-rally-as-modi-s-tax-cut-plan-offsets-trade-tension
[2] https://news.bloomberglaw.com/international-trade/modi-bolsters-indias-economy-with-tax-cuts-ahead-of-us-tariffs