"India’s economic outlook is turning more positive as the unwarranted monetary tightening of the past is now being reversed, paving the way for recovery," said Chanchal Agarwal, Chief Investment Officer at Equirus Credence Family Office in an interview to Moneycontrol.
According to Chanchal, RBI is moving aggressively on three fronts: cutting interest rates, injecting liquidity, and easing regulations.
Adding to the momentum, wholesale inflation in April 2025 dropped to a 14-month low of 0.85 percent, while retail inflation also moderated more than expected. "This cooling inflation gives the RBI room to front-load rate cuts. Analysts expect a further 50 basis point reduction, with surplus liquidity maintained in the next two policy rounds, signalling strong support for economic revival," said Chanchal Agarwal is the Chief Investment Officer at Equirus Credence Family Office.
With the pause in US-China tariffs, do you expect a sharp slowdown in the US market instead of a technical recession?
Public concern over the economy is growing, with 66 percent of adults feeling pessimistic and 69 percent expecting a recession within the next year. BlackRock CEO Larry Fink noted that many business leaders already believe the US is in a recession. GDP growth was flat in the first quarter, halfway to a technical recession. Globally, trade activity is slowing: shipping traffic is down, ports are quiet, and many China-bound vessels are leaving half-empty during what's typically a busy season.
Trade tensions remain unresolved despite a temporary truce, and KPMG’s chief economist Diane Swonk warns that a “stop-go” policy approach could prolong supply chain disruptions and lead to further missteps.
Despite economic uncertainty, markets continue to rise. However, analysts caution that recent gains could prompt short-term profit-taking. Most forecasts point to a prolonged slowdown, with near-zero growth over several quarters, short of a technical recession, unless new shocks emerge.
Do you expect inflation to remain low in the coming months, and the RBI to deliver a 50–75 bps cut in the repo rate during the upcoming policy meetings in 2025?
India’s economic outlook is turning more positive as the unwarranted monetary tightening of the past is now being reversed, paving the way for recovery. Unlike other economies, India faced a growth slowdown despite stable macro indicators—no significant inflation surge, current account stress, or private debt spike.
Now, RBI is moving aggressively on three fronts: cutting interest rates, injecting liquidity, and easing regulations. Adding to the momentum, wholesale inflation in April 2025 dropped to a 14-month low of 0.85 percent, while retail inflation also moderated more than expected.
This cooling inflation gives the RBI room to front-load rate cuts. Analysts expect a further 50 basis point reduction, with surplus liquidity maintained in the next two policy rounds, signalling strong support for economic revival.
Do you believe most of the tailwinds have already been discounted by the equity market, and that the rally from here on may not be as sharp as what we have seen since April?
After a sharp correction between September and March, Indian equities have staged a recovery. The Nifty 50 rebounded 10 percent after a 16 percent decline from its recent peak. However, with the 1-year forward PE still 10 percent above historical averages, further upside appears limited.
The mean reversion phase seems largely complete, suggesting limited downside—but also constrained near-term gains. With the rate cut cycle underway, equities may perform in line with bonds over shorter horizons.
Market leadership is expected to shift from broad-based indices like the Nifty 50 and Small Cap index to more focused themes. Unlike previous corrections driven by corporate leverage, current balance sheets—especially in small caps—are healthier, with debt-to-equity ratios even lower than those of large caps.
However, broader market weakness is evident. In Q4FY25, the NSE 500 index declined 6.8 percent, but the median stock return was a steeper -12.8 percent, highlighting growing divergence. Index averages are increasingly skewed by a few outperformers, making this a time for careful stock selection rather than broad exposure.
What are the next key triggers and challenges for the equity market?
Softer crude prices, a stable rupee, and dollar moderation are all tailwinds for India's macro stability.
Challenges remain on the Private sector capex. While positives here are that Bank approval for private projects growing rapidly at ~20 percent CAGR since 2020. Capacity utilisation nearing 12-year high. But challenges arise from execution. Apple is looking to shift more than 25 percent of the global iPhone production from China to India by the end of 2026; but, are we positioned well to lead the small sector manufacturing spot that China is excusing itself out of? Or will we again lose this out to likes of Vietnam/Bangladesh.
Given the evolving global geopolitical landscape, what are the key global macro risks that Indian investors should keep an eye on in the second half of 2025?
The anticipated return of Trump-era policies—dubbed "Trump 2.0"—is seen as broadly deflationary, potentially increasing pressure on the US Federal Reserve to ease rates. This comes at a time when market-driven 10-year Treasury yields are climbing, recently rising by around 35 basis points, resisting that pressure.
In contrast, India’s central bank continues to pursue an easing stance. If the Fed cuts rates, the India–U.S. rate differential could narrow to multi-year lows, impacting capital flows and currency dynamics.
While inflation expectations have cooled, any renewed price pressures could quickly unsettle markets.
Meanwhile, a significant but underappreciated risk looms in Japan. Holding $1.1 trillion in U.S. Treasuries, Japan remains the largest foreign holder of American debt. Analysts warn this stake could become a strategic bargaining chip in future U.S.-Japan tariff negotiations. With U.S. debt markets already under strain, any signal of Japanese redemption could be destabilizing.
As we move deeper into the earnings season, are there any notable sectoral divergences that could shape market leadership in the second half of 2025?
Data from NielsenIQ also suggests that FMCG volume growth has been picking up, especially on the rural front, with YoY growth of 9.9 percent in Q3FY25. The rural economy has continued to be the main consumption driver over the last 3 quarters, with growth improving from 5.7 percent in the previous quarter.
Russian oil shipments to India are heading for the highest level in two years this month as flows rebound following disruptions caused by US sanctions on Moscow’s energy industry. India’s imports of Russian crude are on track to hit 2.15 million barrels a day in April, the biggest monthly volume since May 2023. For a importer country like ours this is a positive.
You will see earnings recovery shifting to mid-caps in the next years. If early estimates are to go by, Midcap 150 could see earnings growth increasing from 10 percent YoY to 23 percent YoY in FY27. Another determining factor is FIIs returning to shore, typically mid-caps start seeing momentum once positive offshore flows begin.
Disclaimer: The views and investment tips expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.
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