Daily Voice: RBI likely to cut rates by 25–50 bps in FY26, but timing depends on inflation and global cues, says this fund manager

Yes, the market appears to be undergoing a time-wise correction rather than a deep price drawdown. Valuations remain elevated, but strong SIP flows and institutional buying have provided downside support. Nifty’s trailing P/E is hovering around 22–23x, which isn’t cheap, but it's being absorbed by resilient domestic liquidity and sectoral rotation.

The lack of a negative macro trigger and robust long-term earnings visibility in select segments (like industrials, auto, and BFSI) suggests that the market is more likely to consolidate and digest its gains over the next few months rather than sharply correct.

Do you still see a possibility of a 25 to 50 basis points cut in the repo rate by the RBI before the end of FY26?

Yes, a cumulative 25–50 bps rate cut by RBI remains on the table in FY26, although the timing will hinge on the inflation trajectory and global cues. With CPI inflation gradually moderating and core inflation below 4%, the RBI could start easing once the Fed begins its rate cut cycle.

However, any volatility in food prices or oil due to geopolitical risks could delay the RBI’s move to 2026. Markets are currently pricing in one cut by early FY26, though it is more likely to materialize later in the fiscal year rather than in the September policy.

Amid the current correction driven by mixed earnings and the potential impact of Trump’s tariff threat, which sectors or stocks are you looking to buy?

We are seeing accumulation opportunities in domestic-oriented sectors that are insulated from global volatility. Capital goods and auto ancillary names continue to show strong earnings momentum and order books.

Select financials—especially in the mid-tier lending and insurance space—are also looking attractive from a risk-reward standpoint. Quantitatively, high momentum and low volatility clusters have shifted towards construction, industrials, materials such as chemicals and cement, and select consumption plays.

After a mixed performance in the June quarter, are you optimistic about a stronger earnings season in the September quarter?

Yes, the earnings outlook for Q2FY26 looks relatively better, driven by margin tailwinds from stable input costs and volume pick-up in urban discretionary and capital-intensive sectors. The June quarter saw operating margin pressure in consumption and IT, but several sectors like auto, infra, and private banks continued to deliver strong double-digit profit growth.

If monsoon trends improve and rural demand picks up, we could see earnings surprises in the broader market. Additionally, we could see a broader consumption pickup later in the year, backed by potential rate cuts and possible tax relief measures, which may further uplift earnings sentiment in the second half.

If the US imposes penalties on India for importing Russian oil, do you foresee a significant impact on the Indian economy?

While direct penalties are unlikely in the near term, any disruption to discounted Russian crude would raise India’s import bill and impact inflation, widening the fiscal and current account deficit. India has benefited significantly from lower-cost Russian crude—over 30% of its oil imports in 2024 came from Russia—so any restriction would raise average crude prices and affect downstream sectors.

However, the government is likely to diplomatically manage the situation given the strategic importance of energy security. Moreover, the second-order effects—such as India accelerating free trade agreements with other nations to offset geopolitical risks—could help neutralize any adverse GDP impact in the medium term.

Is your quantitative data analysis currently signaling caution or an ‘avoid’ stance on the IT sector?

Our quant models are signaling caution on the IT sector. Momentum and earnings revisions have been negative across large and mid-cap IT names. Despite attractive valuations in some cases, weak deal wins, delayed client budgets, and declining EBIT margins are suppressing factor scores. Until we see a recovery in order inflow and an uptick in forward earnings estimates, we are maintaining an underweight stance.

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