Daily Voice: Fed rate cut, not India–US trade deal, may drive market rally, says this portfolio manager

While the intentions are clear on both sides to resolve outstanding issues and progress toward a trade agreement, the process is expected to involve gradual, multi-stage negotiations. The commerce minister has indicated that the first tranche of the trade deal could be expected around November. Meanwhile, India has either concluded or is currently negotiating trade deals with several countries, including the UK, EFTA, UAE, Mauritius, and Australia, which could give it additional leverage in bilateral discussions with the US.

If yes, do you expect a relief rally in Indian equities going forward? What other potential triggers could drive the markets from here on?

Since the first tranche of the trade deal is expected only by November, it is unlikely to result in a near-term relief rally. However, more than the trade deal itself, the anticipated US Fed rate cut could be a significant trigger for FII inflows, potentially driving markets higher. We’ve already seen strong DII net buying, and any pause in FII net selling—similar to the trend seen from March to June this year—is expected to be a positive catalyst for the markets.

After the effective management of fiscal and monetary policies, do you expect further government initiatives to improve the ease of doing business in the coming months?

We view the government’s initiatives as long-term strategic efforts aimed at placing India on a high-growth trajectory during the coming decades of Amrit Kaal. Large-scale, high-quality capex in infrastructure, along with targeted support for sunrise and export-oriented sectors, is laying the foundation for sustainable growth.

The easing of supply chain bottlenecks has contributed to a low-inflation, low-interest-rate environment that should further support consumption. Tax relief measures and GST rationalizations are additional steps in this direction.

Given the significant reforms implemented so far this calendar year, are you confident about double-digit earnings growth in FY26, or do you have reservations?

Q1 GDP growth this year signals a return to a high-growth economic regime, with the services sector expanding at 9.3 percent. In Q1, listed companies reported moderate revenue growth of ~6 percent and earnings growth of ~9 percent. We expect earnings growth to return to double digits, supported by the festive season, increased consumption, tax cuts, and a benign interest rate environment.

Do you believe one more rate cut by the RBI would be sufficient to boost economic and earnings growth, in addition to the already announced interest rate reductions and government measures?

With inflation projected at around 3 percent for FY26—and recent CPI numbers of 1.6–2.1 percent over the past three months, at the lower end of the RBI’s target range—there is a strong case for a rate cut. Given the additional fiscal measures announced to support growth, the central bank has considerable flexibility in determining the timing of further cuts. We believe there is room for multiple 25 bps cuts during this financial year, which would provide continued support for economic and earnings growth.

Do you foresee a meaningful pickup in corporate lending only by Q4FY26?

We are already seeing a significant increase in borrowings in sectors such as Consumer Discretionary, Industrials, and Utilities. This is reflected in the rising capex-to-assets ratio across these segments. Over the past year, total debt for Industrials and Utilities has increased by 27.6 percent and 9.4 percent, respectively. This trend suggests that corporate lending momentum may pick up earlier than Q4 FY26, particularly in capex-heavy industries.

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