Daily Voice: Earnings recovery in Q3 may be limited if economic environment remains challenging, says Waterfield Advisors' Vipul Bhowar

The Indian equity market may undergo a consolidation phase after the US elections before aiming for new record highs. US election outcomes historically influence Indian markets through changes in economic policies that impact trade. While Trump’s "America First" policies might create challenges for Indian exports due to protectionism, they could also offer opportunities, positioning India as an alternative supplier to China.

What could be a positive factor for India following Donald Trump's win in the US elections?

Trump's return to power is expected to strengthen the strategic partnership between India and the US, particularly considering his previous rapport with Prime Minister Modi. This personal connection could lead to smoother negotiations in trade and defense, promoting closer cooperation between the two nations. Additionally, his emphasis on tax cuts and business incentives may boost US economic growth, which could in turn have a positive impact on Indian businesses.

Do you think Trump is likely to demand lower interest rates from the US Federal Reserve?

Donald Trump has publicly criticized the Federal Reserve, particularly during his first term when he regularly urged the central bank to lower interest rates. He has consistently maintained that lowering interest rates would benefit both consumers and businesses, ultimately promoting economic growth. Given this history, it is reasonable to anticipate that he will advocate for further rate cuts from the Fed in his upcoming term.

Do you see any risk to the Indian currency from Donald Trump's policies?

Trump's protectionist policies have strengthened the US dollar. As the dollar rises, emerging markets like India may face capital outflows. Higher tariffs could increase US inflation, prompting the Federal Reserve to act, which may also affect global monetary policies, including India's. This may result in tighter liquidity in global markets, impacting foreign investments in India and putting pressure on the rupee.

Are you bullish on the banking and NBFC sectors?

Both the banking and non-banking financial company (NBFC) sectors have reported mixed results for Q2 of FY25, primarily due to rising credit costs, tightening liquidity conditions, and regulatory challenges. While some firms in these sectors may still show resilience, the overall outlook indicates cautious performance in the near term as they navigate these challenges.

Do you see any possibility of an earnings revival in the December quarter?

The expected revenue growth for the December quarter is driven by several factors, including seasonal demand increases, recoveries in specific sectors, effective cost management strategies, stabilizing input costs, and positive economic indicators. While there are encouraging signs for particular sectors like select BFSI (Banking, Financial Services, and Insurance) and IT, the overall economic environment remains challenging. This suggests that any earnings recovery in the December quarter may be limited or vary across different industries.

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