Daily Voice: Economic growth recovery in 2HFY26 expected to be moderate rather than robust, says Waterfield's Vipul Bhowar

In the present circumstances, geopolitical conflicts, extreme weather phenomena, increasing trade protectionism, trade wars, tariffs, and swift technological advancements are contributing to economic uncertainty, which has the potential to induce downturns and diminish global investment. Hence, it would be too early to conclude whether global factor risk has been significantly reduced.

If so, combined with favourable domestic factors, do you believe the bulls will remain in a strong position, helping the market deliver healthy double-digit returns over the next couple of years?

Recent actions by the Reserve Bank of India (RBI), including rate cuts and significant liquidity infusion, have played a key role in supporting the economy's recovery in 2025. The combination has eased borrowing costs, boosted business confidence, and improved market sentiment. Over the next few quarters, we expect to see a rolling recovery across sectors, and a broad-based rally may not materialise. Investor portfolios will require a selective sector allocation and a long-term horizon to achieve double-digit returns.

Which sectors would you prefer to bet on, considering the significant supply chain diversification by large global companies?

Companies in the manufacturing sector, particularly those in electronics, automotive, and textiles, are relocating their production from traditional hubs to mitigate geopolitical risks and tariffs. Additionally, renewable energy and battery storage, as well as logistics and supply chain services, should benefit from risk mitigation, cost optimisation, resilience, access to new markets, and alignment with evolving geopolitical and environmental priorities.

Do you strongly believe the RBI will implement a third interest rate cut in its June policy meeting? Do you expect any changes in the economic growth and inflation forecasts?

Inflation in India has persisted below the Reserve Bank of India's (RBI) 4% target for two consecutive months, thereby creating an opportunity for additional rate reduction. Furthermore, the minutes from the RBI's April policy meeting and expert analyses suggest a commitment to an accommodative approach and a willingness to pursue further easing in light of moderated inflation and subdued economic growth.

Hence, while some caution remains due to global uncertainties, the domestic growth-inflation outlook favours rate cuts to support the economy. The inflation forecast for FY26 has been notably revised downward from the previous estimate of 4%. This adjustment is primarily attributed to decreasing food prices, robust agricultural output, and a decline in crude oil prices, all contributing to an enhanced disinflationary outlook. Furthermore, the projected GDP growth for FY26 is approximated to be between 6.5% and 6.7%, although some volatility may be anticipated due to external risks.

Do you anticipate a strong pickup in economic growth from the second half of FY26 onward?

There are favourable indicators, including tax incentives that increase disposable income, strong rural demand, and government investment. However, the overall growth recovery in the second half of FY26 is anticipated to be moderate rather than robust. Global trade uncertainties, tariff concerns, and fiscal and monetary tightening are expected to constrain a significant acceleration in growth. The consensus range for FY26 GDP growth hovers between 6.2% and 6.7%, with a slight improvement possible in the latter half, though no dramatic surge is anticipated.

Are you highly bullish on private banks from a 3–4-year investment perspective?

Given the stable credit environment, strong profitability, operational agility, attractive valuations, and growth in private banking services, the investment case for private banks over the next three to four years is highly bullish.

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