Markets showed grit in August; despite foreign selling and policy shocks, resilience came through in GDP numbers, a sovereign rating upgrade, and sector rotations worth tracking. Here’s Windmill Capital’s round-up.

Markets Last Month 🗓️

Five big stories defined August: sector churn in equities, India’s sovereign upgrade, GST reforms 2.0, a sweeping ban on online gaming formats, and the first GDP print of FY26.

TL;DR

1. Markets in August: Resilience Amid Rotation

Indian equities were mixed in August 2025. The Nifty 50 consolidated further, down about 1.2%, while midcaps and smallcaps bore sharper losses. Sector rotation was clear: autos staged a ~6% recovery, while banks, chemicals, IT, and pharma lagged.

On the flows side, Foreign Institutional Investors (FIIs) continued selling, offloading ₹46,902 crore in the cash market, while Domestic Institutional Investors (DIIs) counterbalanced with net buys of ₹94,828 crore.

2. India’s First Sovereign Upgrade in 18 Years

On August 14, 2025, S&P Global Ratings upgraded India’s long-term sovereign credit rating from “BBB-” to “BBB”; its first move higher in nearly two decades. The upgrade was attributed to economic resilience, credible monetary policy, and fiscal consolidation.

S&P cited India’s standout growth record: average real GDP growth of 8.8% between FY2022–24 (the best in Asia-Pacific) and a projected 6.8% over the next three years. It also lifted India’s transfer and convertibility assessment to “A-” from “BBB+,” marking stronger external resilience.

Markets responded positively. The rupee firmed to ₹87.58/USD (from ₹87.66), and the 10-year government bond yield eased ~7 bps to 6.38%.
Still, the upgrade comes with caveats: slippage in fiscal discipline or weaker growth could stall progress. Conversely, sustained deficit control and debt containment could open doors to further upgrades.

3. GST Reforms 2.0: A Diwali Gift in Advance

Prime Minister Modi unveiled “Next-Generation GST” reforms in his Independence Day address. Billed as a Diwali gift to citizens, the plan focuses on cutting the tax burden on daily-use items, easing compliance for MSMEs, and making life simpler for households, farmers, youth, and the neo-middle class.

The reforms rest on three pillars: structural changes, rate rationalisation, and taxpayer convenience. With the eight-year-old GST framework now “mature,” the announcement positions this as a transformative step toward a more efficient, inclusive system.

We’ll unpack the details in next month’s edition.

4. Q1 GDP Growth Surges to 7.8%; India Edges Closer to #4 Spot

India’s Q1 FY26 GDP growth printed at 7.8%, a sharp rise from 6.5% a year earlier, lifting constant-price GDP to ₹47.89 lakh crore (vs ₹44.42 lakh crore in Q1 FY25). The result keeps India’s long-term trajectory toward becoming the world’s fourth-largest economy firmly in view.

Agriculture & allied (livestock, forestry, fishing, mining, quarrying): 3.7%, up from 1.5%.
Secondary sector: Manufacturing (7.7%) and construction (7.6%) both outperformed.
Tertiary sector: Services (trade, transport, finance, real estate, public admin) surged 9.3%, vs 6.8% a year ago.

On the demand side:

Private consumption grew 7.0%, slower than 8.3% last year.
Government consumption rebounded strongly at 9.7% (vs 4.0% a year ago).

The print reaffirms India’s growth momentum at the start of FY26, with sectoral strength providing the base for its march toward the #4 global economy position.

5. Online Gaming Ban: A Blow to a Sunrise Sector

The government moved to ban certain real-money online gaming formats, citing concerns around addiction, underage participation, and tax evasion. The industry, pegged at ₹16,500 crore in 2023, faces major disruption, especially fantasy sports and card-based platforms, which contributed ~65% of revenues.

With 450 million gamers, India is the world’s second-largest gaming market by users. However, the space has been under strain since the 28% GST was imposed last year. Now, analysts estimate revenues could shrink 25-30% in FY26. Listed firms like Nazara Tech took a hit after the announcement.

Critics argue that while consumer protection is the stated goal, the move risks driving activity underground and derailing an industry that might have touched $8.5 billion by 2028.

Windmill Wisdom 🧠

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