Daily Voice: ‘Bachat Utsav’ may fizzle out? Dhananjay Sinha warns of over-optimism in market assumptions

Overall, the Fed’s guidance has carried a flavour of hawkishness, thereby significantly reducing the probability of a December 2025 rate cut, emphasising a data-dependent, meeting-by-meeting approach in an environment of two-sided risks and diminished clarity. Wednesday’s rate cut action to 3.75-4.0 percent appears as a pre-emptive move described as "risk management".

Do you see the possibility of one more rate cut in the December meeting, followed by a prolonged pause in the rate-cut cycle?

Given the strongly differing view among the committee members regarding prospects of another rate cut in December 2025, with many disapproving of further easing due to inflation and employment risks foreboding prospects of stagflation. Currently, the baseline assumption is that the tariff hikes will have a one-time price-level effect.

But there is a possibility that the inflationary impulse from trade disruptions and supply shortages can be prolonged, leading to considerable pass-through or secondary effects. Hence, the future decision will be a function of how the trade scenario pans out and how the Fed balances with the political pressure for deeper rate cuts.

Do you expect the announcement of the first phase of the India–US trade deal in November?

It is difficult to predict the outcome of trade negotiations between India and the US. The scenario over the past eight months has vacillated considerably between the initial assumption of India being spared from harsh measures to the current tariffs being the second highest.

Earlier, we expected that the US tariff on India would settle around 20-25 percent, but instead it has escalated to 50 percent as the US pressures India to abandon oil imports from Russia. In addition, hike in charges from acquiring H1B visa and prospect of implementing the HIRE act that imposes taxes on outsourcing make is abundantly clear that India’s services are also targeted.

Further, there are vexed issues relating to market access to India’s farm products. Overall, it will be premature to hazard a guess at this juncture.

What, in your view, are the key triggers and challenges for the equity markets during the remainder of the current financial year?

Earnings trajectory has been muted over the past 4-6 quarters, characterised by a marked deceleration in sales growth of companies. Expectations are afloat regarding the possibility of a significant revival in consumption demand, driven by the rationalisation of GST rates, easing of income tax, the impact of the RBI’s monetary easing, and the prospects of a US–India trade deal. Additionally, there is a perception among market participants and policymakers that US tariffication will have a limited impact on India’s growth.

The risk is that many of these assumptions are optimistic. There is a high likelihood that festive demand may disappoint despite the much hyped “Bachat Utsav” theme around the GST rationalisation. Also, there is uncertainty around the implications of the global trade slowdown and the outcome of the trade negotiations with the US.

Have you observed any surprising trends or indications from the September-quarter earnings season?

The ongoing result season is on expected lines, which is pivoted on a weak demand scenario, margin pressure and companies working towards cost optimisation to keep profitability afloat. Post results most companies have seen their earnings outlook getting cut.

Banks, autos, and consumer goods have seen a moderation in earnings. NBFCs, cement and power-related companies have done relatively better.

Which sectors, in your opinion, offer the best opportunity to play the AI theme?

Most manufacturing and services sector large companies are gaining from automation and AI implementation. Sectors that have leveraged on this theme are Data centres, ITES, non-conventional energy, BESS, and e-commerce/Q-Commerce.

Do you expect significant implications from the sanctions on Russian oil companies for India and related sectors?

The US has imposed sanctions on Russian oil majors Rosneft PJSC and Lukoil PJSC—producing ~3.6 million and 1.6 million bpd, respectively, or 45–50 percent of Russia’s output and 4.8 percent of global supply, to curb funding for the Ukraine war, with the UK following suit last week and the EU approving its 19th package banning Russian LNG imports while adding two Chinese refiners (600,000 bpd combined capacity) and PetroChina’s China oil Hong Kong to the list.

Amid prior oversupply signals, record tanker volumes at sea and the IEA forecasting a 4 million bpd global surplus in 2025 with weakening forward curves, these measures are expected to normalise the demand-supply balance. Consequently, crude prices rose 5 percent, diesel cracks climbed to $26 a barrel from $22 a barrel (petrol cracks flat at $13 a barrel), compressing OMC marketing margins by Rs 4.3 per litre on diesel and Rs 1.7 per litre on petrol to Rs 3.5 per litre and Rs 10.4 per litre, respectively, though GRMs gained ~$2 per barrel; every Re 1 per litre margin erosion typically cuts OMC EBITDA by 10–14 percent and PAT by 15–20 percent.

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