Daily Voice: 25% tariff cut key to 12-15% equity upside; FY27 Budget to back capital-intensive sectors, says LGT’s Chakri Lokapriya

According to Chakri Lokapriya, the CIO- Equities at LGT Wealth India, evidence of a credible India–US tariff deal could lead to strong FII inflows, a re-rating of market valuations, and appreciation of the rupee.

A reduction in tariffs from punitive levels of 50% to around 25% would be critical for markets to deliver 12–15% gains, he said in an interview to Moneycontrol.

He is of the view that the Union Budget for FY27 is expected to focus on capital-intensive sectors such as power, manufacturing, and infrastructure, while continuing efforts to manage fiscal deficits and improve credit growth.

Which segments are expected to receive the Finance Minister's attention in the upcoming Union Budget?

The Union Budget for FY27 is expected to focus on capital-intensive sectors such as power, manufacturing, and infrastructure, while continuing efforts to manage fiscal deficits and improve credit growth.

With farm productivity already improving and the previous budget emphasizing consumer-oriented measures, the government is likely to shift its attention toward higher capital expenditure, particularly in infrastructure, to sustain and accelerate economic growth.

Additionally, RBI dividend payouts are expected to remain broadly in line with last year's levels, providing continued fiscal support.

Do you agree that earnings growth may improve going forward, but is unlikely to deliver great positive surprises?

Yes, earnings growth is expected to improve gradually, supported by a strengthening macroeconomic environment. A key assumption underpinning this outlook is a favourable resolution to prolonged India–US tariff negotiations.

Financials are likely to contribute 45–50% of incremental index earnings over FY26-FY28. Other sectors such as metals, energy, consumption, and IT are also expected to support earnings growth, particularly in FY2026.

Overall, earnings are projected to grow at a healthy 15–17% in FY27, though significant positive surprises appear unlikely.

Do you think the Trump administration's mood will keep equity markets volatile and in a consolidation phase even in 2026? Or do you still see the market delivering 12–15% gains this year?

Market volatility is likely to persist due to global policy uncertainty, especially related to US trade actions. In 2025, FII outflows totaled $17.7 billion, exceeding even the $12.9 billion seen during the 2008 global financial crisis. However, history suggests that once macro stability improves, flows can reverse meaningfully.

Evidence of a credible India–US tariff deal could lead to strong FII inflows, a re-rating of market valuations, and appreciation of the rupee. A reduction in tariffs from punitive levels of 50% to around 25% would be critical for markets to deliver 12–15% gains.

Do you foresee significant geopolitical risks in West Asia in 2026?

Geopolitical risks appear manageable, as global oil demand remains weak and prices are below $60 per barrel—levels that discourage fresh investments. Meanwhile, rising global supply limits the market's ability to absorb additional production. As a result, developments such as the US actions in Venezuela are unlikely to affect oil prices significantly. Consequently, the impact on India's oil import bill should remain limited.

Do you expect the RBI to cut benchmark interest rates by at least 50 basis points in the current year?

With inflation running below trend and the RBI focused on supporting growth, benchmark rate cuts of 25–50 basis points are possible in 2026.

Which three sectors would you add to your portfolio for the current year?

Automobiles stand out due to the potential for a large and unexpected GST cut, which could significantly boost earnings and valuations. Financials remain attractive given reasonable valuations, strong balance sheets, and stable credit quality.

Domestic consumption is also well-positioned, supported by GST reductions, income tax cuts, and lower interest rates.

Do you see any significant challenges to economic growth in the upcoming quarters?

The key challenge remains the timely resolution of an India–US tariff agreement. A positive outcome would support the rupee, improve investor sentiment, and strengthen earnings growth. However, delays could weigh on markets despite reasonable valuations of around 20x earnings and India's premium to emerging markets remaining below long-term averages.

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