Daily Voice: Dramatic fiscal stimulus measures unlikely in budget, bullish on these 7 megatrends, says Enam AMC's Jiten Doshi

Jiten Doshi is the Co-Founder and Chief Investment Officer at Enam AMC

According to Jiten Doshi of Enam AMC, the momentum for reforms, particularly in manufacturing, is expected to persist in the Union Budget scheduled to be presented on February 1.

Further, the government's emphasis on infrastructure and capex is likely to continue, but dramatic fiscal stimulus measures are unlikely unless there is a prolonged economic slowdown, he said.

He remains bullish on opportunities that navigate transformative megatrends, including digitization, aspirational consumption, financialization, formalization, home improvement, manufacturing renaissance, and the emerging capex cycle.

These trends are expected to drive sustainable growth and create significant investment opportunities in the coming years, said the Co-Founder and Chief Investment Officer at Enam AMC who has an experience of over 32 years in capital markets.

Do you anticipate a strong pickup in capital expenditure (capex) and consumption in FY26?

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Jiten Doshi

Co-Founder and Chief Investment Officer|Enam Asset Management Company

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Over the past decade and a half, India Inc. has focused on enhancing asset efficiency, improving cash conversion, and deleveraging balance sheets. This strategic shift has led to the consolidation of industries, with market leaders generating substantial cash reserves. As demand stabilizes, many of these companies are now investing in capacity expansion for the coming decade. We anticipate a significant uptick in capital expenditure (capex) and consumption on a favourable base in FY26, supported by the government's continued emphasis on infrastructure and capex.

Looking ahead, we foresee sustained momentum in broad capex areas such as transmission and distribution (T&D), manufacturing, railways, renewables, real estate, and infrastructure construction. In FY26, the focus for companies will shift towards order execution rather than securing new government orders. While consumption has faced challenges in recent years, with rural consumption slowing in FY23-24 and urban consumption faltering in FY25, we expect a gradual improvement in consumption trends in FY26. This recovery, coupled with strategic investments in key sectors, positions India for robust economic growth in the medium to long term.

Do you think the equity market is approaching the budget with low expectations?

As the government navigates the complexities of coalition politics and welfare economics, it faces short-term macroeconomic headwinds, including rising crude prices, a weakening currency, persistent inflation, and delayed policy rate cuts. Entering the budget session, these challenges are compounded by local uncertainties such as the Delhi Elections and global factors like the formal installation of the Trump administration. These elements weigh heavily on market sentiment, creating a cautious yet hopeful outlook.

Despite these challenges, the equity market remains optimistic about the upcoming budget, anticipating growth-boosting reforms. Investors are hopeful that the budget will strike a balance between stimulating economic growth and adhering to fiscal constraints. The focus will be on how the government addresses these macroeconomic issues while continuing its emphasis on infrastructure and capex. This balanced approach is crucial for sustaining investor confidence and driving long-term economic growth.

Given weak Q2 earnings, a growth slowdown, persistent FII selling, and weak capex spending, do you expect major announcements from the finance minister in the Union Budget?

Over the years, India's budget has evolved into a document of intent, shaped by persistent interventions from regulators and frameworks like the GST Council. While the coalition structure at the Centre can sometimes hinder political will for reform, the current government remains united in its commitment to development, reforms, and empowerment. This focus on delivering core economic benefits to the lowest common denominator has been a consistent theme. The ruling regime's recent strong performance in state elections further bolsters its mandate for continued reforms.

The momentum for reforms, particularly in manufacturing, is expected to persist. The government's emphasis on infrastructure and capex is likely to continue, driving growth in key sectors. However, dramatic fiscal stimulus measures are unlikely unless there is a prolonged economic slowdown. Instead, the focus will be on strategic, sustainable growth initiatives that balance fiscal prudence with development goals. This approach aims to maintain macroeconomic stability while fostering long-term economic resilience.

Is the macroeconomic situation bottoming out? If so, does this signal it is time to turn constructive on stocks?

In CY25, the Indian Rupee (INR) might face competitive depreciation risks in Emerging Markets (EM) if the US imposes stiff tariffs on China, potentially triggering a Chinese Yuan (CNY) depreciation and a currency war. However, there are bright spots: commodities may see softness, corporate balance sheets are strong, and banks are well-capitalized. The Indian stock market's resilience in 2024, highlighted by a sharp rally post-election, sets the stage for potential consolidation in 2025 amid global economic signals and shifting money flow dynamics.

The Indian equity market presents a mix of opportunities and challenges in CY25. Political and policy continuity is more certain in India than almost anywhere else, with each regime building on the previous one. This stability contrasts with global political uncertainty and dramatic policy differences between parties. Investors can expect a balanced approach, leveraging strong corporate fundamentals and well-capitalized banks to navigate the potential headwinds and capitalize on emerging opportunities.

Do you foresee low to mid-teens growth in Nifty earnings in FY25 and FY26?

India is poised for GDP growth of 6.0-6.5% in FY25-26, with a cautiously optimistic earnings outlook. For FY25, the Nifty-50 is expected to deliver modest single-digit growth, normalizing after a high base of 26% growth in FY24. This reflects the convergence of earnings with revenue growth trends. In FY26, the outlook is more robust, with projected earnings growth in early-teens for the Nifty-50. Key drivers include strong performance in BFSI, Capital Goods, Technology, Healthcare, and Real Estate sectors. However, global cyclicals like Metals, O&G, and Cement may continue to drag on overall growth.

Despite near-term challenges, medium-term opportunities remain intact, supported by strategic policy interventions and sectoral strengths. We remain bullish on opportunities that navigate transformative megatrends, including digitization, aspirational consumption, financialization, formalization, home improvement, manufacturing renaissance, and the emerging capex cycle. These trends are expected to drive sustainable growth and create significant investment opportunities in the coming years.

Do you expect the Reserve Bank of India (RBI) to begin an interest rate cut cycle in the second half of 2025?

The Reserve Bank of India (RBI) has maintained the repo rate at 6.5%, adopting a neutral policy stance to balance growth and inflation control. The Cash Reserve Ratio (CRR) was reduced by 50 basis points to 4%, enhancing liquidity in the banking system. Despite global uncertainties, the GDP growth forecast for FY25 is revised to 6.6%, while CPI inflation expectations are adjusted to 4.8%. The RBI's approach aims to foster economic resilience and price stability. Investors should stay informed about policy changes, as stable interest rates and vigilant inflation monitoring are crucial for navigating the evolving economic landscape.

The Indian rate cut cycle is expected to be shallower than previously anticipated. Trump's tariffs could lead to currency depreciations in Emerging Markets, potentially triggering a currency war. While the RBI is defending the INR, it will eventually align with other EM currencies that have depreciated against the INR. Despite these challenges, the RBI's balanced approach and strategic interventions are expected to support economic stability and growth, making it essential for investors to stay updated on policy developments.

Are you optimistic about consumer staples?

India's consumption story, while impressive under Prime Minister Modi, faces significant challenges. Household consumption has nearly trebled to $2.07 trillion, driving around 60% of GDP. However, GDP growth is expected to hit a four-year low of 6.4%. Despite strong luxury market spending, broader consumer spending remains weak, decoupling from national output since March 2023. The job market is struggling, with stagnant wages and fewer hires, particularly in the IT sector. Rural consumption remains weak, and agricultural incomes face long-term challenges despite a brief respite from a strong monsoon in 2024. We expect a gradual improvement in demand trends in CY25, with rural consumption being a notable bright spot.

FMCG companies have consistently served as a good hedge against downturns. In an environment where demand recovery is expected to be gradual, it is prudent to focus on companies with high rural salience and available cost levers. According to many companies, the rural economy is showing positive signs. The likely resumption of government capex in H1CY25 bodes well for the rural economy. Additionally, the shift from social spending rhetoric to action, particularly focused on rural areas and women, will drive rural demand.

Markets are already discounting the hump in the growth narrative, awaiting timely policy interventions and triggers that can restart and help sustain consumption and economic momentum. Potential policy measures like tax cuts and easing credit access could stimulate consumption but carry risks.

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