Moneycontrol Pro Weekender | Budget 2025-26 must Trump-proof the economy

The slowdown is likely to be reflected in the current crop of quarterly results

Dear Reader,

The markets are wallowing in gloom. The Nifty is currently around the same level it was at in June 2024 — seven months ago. There has been relentless selling by foreign portfolio investors, as the rupee plumbed new depths.

The slowing down of the Indian economy has much to do with it. While it’s true that the National Statistics Office’s first advance estimates predict a rebound from the Q2 real GDP growth of 5.4 percent to 6.7 percent growth in the second half of this fiscal year, the fact remains that it’s quite a climbdown from the growth rate of 8.2 percent in 2023-24. The markets aren’t impressed by 6.7 percent growth. All the more so when it’s likely to be the new normal, now that the effect of the rebound from the pandemic has run its course, as we pointed out here.

The United Nations’ ‘World Economic Situation and Prospects’ report, which came out this week, forecasts India’s real GDP growth for calendar year 2025 at 6.6 percent, and 6.7 percent for 2026. The problem is not that growth is slowing from the immediate post-pandemic period, which is understandable, but that it’s well below the average GDP growth rate between 2013-14 and 2018-19. The markets aren’t prepared for this.

Moreover, the markets are also taking the NSO’s forecast of 7.8 percent growth in private consumption in the second half of the year with a pinch of salt, preferring to take their cues instead from the cautious commentary on consumption demand by corporate managements. We analysed the contrasting quarterly growth updates of Marico and Dabur here. Banking sector credit data show that growth in personal credit has been reined in, which too could affect consumption demand. And let’s not forget that the correction in the equity markets could depress consumption via the wealth effect.

The slowdown is likely to be reflected in the current crop of quarterly results. We said the banking sector, which serves as a proxy for the economy, will see a slowdown in Q3. We argued that the peak in bank profitability is behind us. We also pointed to the sluggish growth in GST collections as another indicator of slowing growth.

Wallowing in gloom, though, is hardly an option. My colleague Madhuchanda Dey wrote, “By the second half of FY26, the scenario could start changing for the better. Rural consumption has already started showing signs of revival, courtesy good harvest/sowing and normal monsoon, not to ignore the continuum of freebies, thanks to elections. Infrastructure focus is unlikely to get sidelined and we are hopeful of a meaningful Budget that comprehensively addresses the growth challenges. FY26, on the back of a low base, should therefore be a year of back-ended growth and earnings revival.” There are also likely tailwinds from lower inflation and rate cuts. Her conclusion: Buying the decline could be a rewarding strategy for 2025. As for what stocks to buy, look no further than the MC Pro New Year Portfolio for 2025, with 25 well-researched ideas to help you navigate the uncertainty.

We also seize this occasion to point out that MC Pro’s New Year 2024 portfolio delivered a point-to-point return (from 18 December 2023 to 3 January 2025) of 31.4 percent, well above the Nifty return of 11.9 percent and Nifty 500 return of 18.6 percent over this period.

It’s not just the Indian markets that are nervous. As this FT story says, the worry in the markets “is driven by the lack of a clear narrative. Whether this is down entirely to the political transition taking place in the US is open to question. It does seem, however, that the incoming president’s policy of strategic ambiguity is hard for the market to process”. Strategic ambiguity is a very polite way to describe plain and simple bullying, which is what Trump is doing by his threats to make Canada the 51st state of the US, to send troops to Mexico, to take over the Panama Canal and to annex Greenland. And if this is what the US thinks it can get away with, why criticise Russia’s invasion of Ukraine, or China’s taking over Taiwan. The “rules-based order” is being shredded. It's a throwback to 19th century colonialism, this time with nuclear missiles.

On the other hand, we can argue that the US was always an imperial power, and all that Trump has done is throw away the fig leaves of pretending to defend democracy, or free markets or promoting a so-called rules-based order. That may even be a good thing, in the sense that everyone now knows the emperor has no clothes.

To be sure, a contrarian narrative, as Louis-Vincent Gave, CEO and founder of Gavekal Research, says in this interview, is that the threat of tariffs is just the prelude to sealing a grand bargain between China and the US, whereby China agrees to set up manufacturing units in the US and we have a Mar-a-Lago Accord to depreciate the USD, on the lines of the Plaza Accord in the eighties. That would be the deal of the century, earning Trump a triumphant place in history and a blistering rally by the markets. It does, though, call for a huge leap of faith in his capabilities.

The prudent course of action for nations, for US allies and opponents alike, is to find ways to Trump-proof their economies. In India too, the finance minister must take these extreme uncertainties into account while formulating policies in the 2025-26 Budget. As Gaurav Kapur, chief economist at IndusInd Bank, wrote here, “Strengthening public investment spending will also help counter adverse spillovers on external demand from a slowdown in global trade as the incoming US administration looks to raise tariffs amidst ongoing geo-economic fragmentation.’

Cheers,

Manas Chakravarty

In case you missed them, here are some of the stories and insights we published this week, apart from our technical picks in the equity, commodity and forex markets:

Stocks

MC Pro New Year Portfolio: 25 stocks to capitalise on the opportunities in 2025

GM Breweries, Sirca Paints: Margins squeezed by rising competition, Apex Frozen Foods, Medanta: Time to check out this healthcare theme, Quadrant Futures Tek IPO, Titan, Standard Glass Lining Technology IPO, ITC, FMCG Q3 preview, What does the fall in F&O volume after regulatory measures mean for BSE? Axis Bank, TCS Q3 FY25 – Seasonality bites, but the commentary is reassuring

Budget 2025-26

Is it time for a re-look at low corporate tax rates?

How Free Trade Agreements impact customs duty revenues

Infrastructure: Need to ensure consistent growth, over to Budget 2025-26

Dividends over Disinvestments: The government’s new playbook

Tight DAP market unlikely to upset government’s fertiliser subsidy calculations

Will Budget 2025 see increased focus on government capex?

Will Budget 2025 prioritise stress resolution in banking?

Markets

Will a pre-budget rally take off this year?

High costs and low volumes: The challenges facing India's options market in 2025

Do market corrections trigger fear among retail investors? SIP data shows otherwise

Can gold maintain its shine this year?

Promoters of mid-, small-cap firms cash in on rally; sell shares worth Rs 1.2 lakh crore

India's family offices are transforming domestic private markets

Are wars good for the stock market?

AUM of India-focused Nifty-tracking passive equity funds doubles to near $5 billion in size

Aditya Birla Sun Life MF CIO Mahesh Patil’s 2025 game plan: Stock-specific, quality-centric strategy; optimistic but cautious about 2025

Financial Times

Ruchir Sharma: top 10 trends for 2025

US corporate bankruptcies hit 14-year high as interest rates take toll

The fight over robots threatening American jobs

Private sector stakes claim to Moon’s airwaves

An economically dynamic India is Manmohan Singh’s greatest legacy

Companies and sectors

HCL Tech

Domestic rubber prices fall, but it is early for tyre firms to rejoice

Dhanuka Agritech

Focus on new products at pharma companies as generic Revlimid opportunity draws to a close

Economics and Policy

What are the drivers of economic growth in FY2025?

Why is manufacturing's share in total GVA in FY25 same as in FY07?

RBI’s financial stability review spots two risks from Trump 2.0

Household debt and an emerging k-shaped stress

Pro Economic Tracker

Does India Inc really care about corruption?

Geopolitics

The Eastern Window: What message is Xi Jinping sending through the dam project in Tibet?

Will geopolitics derail natural gas markets in 2025?

Tech and Startups

DPDP Draft Rules: Too little, too many issues and too late

Unexpected, hard to digest: Meta’s shift to community notes leaves Indian fact-checkers in limbo

Personal Finance

You need to have a long-term mindset to make money

A growth-investing strategy for investors seeking consistent returns