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Goods and services tax (GST)-related developments, along with S&P Global Ratings' upgrade of India and hopes of lower tariffs, have kept equity markets buoyant in recent days. Taher Badshah, chief investment officer at Invesco Mutual Fund, tells Puneet Wadhwa in a telephonic interview that Indian markets, after material underperformance relative to global markets over the past 12 months, are far from the euphoria seen in 2024. Edited excerpts:

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Have the markets discounted the worst regarding tariff-related developments?

Tariff developments in India have diverged sharply from market expectations. Given the fluid situation and the complex factors involved, the current tariff structure may not be final. Nonetheless, Indian policymakers would do well to prepare for the worst and deploy domestic levers, including second-generation reforms, to navigate an increasingly uncertain global environment.

Markets are currently taking comfort in India's ability to act, supported by conducive macros such as inflation, interest rates, current accounts, and contained system leverage.

Consumption versus capital expenditure (capex): which should investors favour in light of the recent GST rate adjustment news?