Vetri Subramaniam said GST and tax reductions could improve market mood in the near term, but he cautioned that the more stringent challenge for equities remains corporate earnings delivery. The observation underlines a key distinction for investors between policy-led sentiment and the fundamental evidence that ultimately sustains valuations and drives long-term returns.
Policy signals and short-term sentiment
Policy cues such as potential tweaks to GST and tax rates often act as immediate confidence boosters for markets. Such measures can be read as supportive signals for consumption, investment activity and business profitability, thereby improving risk appetite. Subramaniam’s view suggests that while these steps may generate positive momentum, the effect is primarily sentiment-driven. Investors typically respond swiftly to clarity on taxes, compliance simplification and perceived pro-growth intentions. However, sentiment is inherently fluid. It can change as quickly as it improves, especially if not backed by follow-through in activity and profitability. The market’s initial response to policy headlines frequently discounts potential benefits upfront, leaving subsequent performance dependent on tangible results rather than expectations alone.
The demanding earnings benchmark
Emphasising that the “earnings bar stays high”, Subramaniam points to the centrality of profit delivery in justifying valuations. When expectations are elevated, companies must demonstrate consistent revenue growth, margin resilience and operational discipline to meet or exceed projections. Markets tend to be unforgiving if actual numbers do not align with the optimism already embedded in prices. In such phases, even stable results may not suffice if the market was positioned for upgrades. The implication is that policy-induced optimism cannot substitute for the breadth and durability of earnings growth. Execution, pricing power, cost management and balance-sheet prudence become decisive. Investors, therefore, may need to look beyond headline cheer to assess whether projected earnings compounding is realistic and whether enterprises can sustain performance across cycles.
Investor takeaways amid policy buzz
For investors, Subramaniam’s assessment translates into a pragmatic approach: welcome supportive policy signals but anchor decisions to fundamentals. While tax and GST changes may provide short-term direction, portfolio resilience rests on cash flows, return metrics and governance. This calls for measured allocation, disciplined risk management and a readiness to reassess positions if earnings delivery falters. Treating policy-led rallies as an opportunity to rebalance rather than chase momentum can help maintain a margin of safety. Diversification, attention to valuation discipline and a focus on quality businesses with transparent disclosures and credible execution track records remain vital. In essence, sentiment can open doors, but sustained performance is typically what keeps them open for long-term investors.
Separating transient boosts from durable trends
Subramaniam’s message underscores the need to distinguish transient lifts from enduring trends. Policy announcements may improve visibility and reduce uncertainty, which are positives in themselves. Yet durable market performance tends to follow broad-based earnings upgrades and the ability of firms to navigate costs, competition and demand variability. Macro cues can set a supportive backdrop, but micro outcomes decide the trajectory. Investors who prioritise consistent financial delivery, capital allocation discipline and realistic growth assumptions are better placed to handle shifting narratives. In periods when the earnings bar is high, the dispersion between companies that execute well and those that do not can widen, reinforcing the importance of selectivity and patience over reactive decision-making.
