Daily Voice: India’s growth could accelerate to 7.5% if US trade pact is finalised, says Smallcase expert

There is an impending Supreme Court of US ruling this week on legality of tariffs. If the, ruling against current administration for the firing of the Fed governor is an indicator, we can rely on an independent judicial review on tariffs in US. On adverse ruling the levies collected so far have to be refunded. There might be a chance that it could be converted to investments into US instead of returning the money. I think people are watching this outcome before any further negotiations are being delayed due to this pending outcome.

Until the trade deal is finalized, do you expect the market to remain rangebound, or is it more influenced by signs of an earnings recovery?

Trade deal has a smaller impact on capital markets versus earnings. Hence, we think the earnings will drive growth in capital for investors in capital markets. Also given recent change in RBI regulations allowing banks to finance M&A, a lot of the upside can also come from acquisitions of smaller businesses which will see consolidation in the market as well.

Are you strongly bullish on the auto sector?

Yes we are. It’s a consumption theme in our opinion which will provide growth opportunities. Also most of our auto exports are in non-tariffed zones and on the balance we remain bullish. The GST cut has made the entry level vehicles more affordable.

So far shared mobility like Uber, Ola did take away possible growth of personal vehicles, but there is always the endowment effect where ownership is more pleasurable versus renting even if the economics are inferior. People attach more value to reliability versus short term flexibility when choosing transportation. This is a dominant trend that will continue.

Do you believe the market has already discounted a 25 bps repo rate cut in December, or are you in the camp that expects no rate cuts in 2025?

Yes, it is well telescoped in recent commentary. Also better financing terms for residential real estate will drive up construction activity as well. Retail, Tourism and Construction are the biggest employment multiplier for each rupee invested, so we do expect to see better employment numbers as well.

The fact that Indian oil imports are below market price from Russia has ensured we have inflation under control and keeps the inflation trajectory, current account deficit, credit growth all working towards growth.

Do you see the 6.8% growth forecast for FY26 and 6.6% for FY27 as achievable, or do you expect the actual numbers to surpass these estimates?

Gained productivity with AI can materially change the GDP upwards. Also lower rates, more easily available credit in housing will drive this towards estimates. I don’t expect the numbers to surpass till we have a trade deal.

Post that a combination of FDI and FPI, growth in exports and domestic demand can all fire at the same time with GDP surprising to about 7.5% estimate.

Do you believe consistent job creation is the most critical factor for a consumption recovery, despite several measures already taken by the government and the RBI?

Yes jobs create stable income and hence create sustained demand versus rural crop cycle. We are quite bullish on formalization of economy which can be seen as increased GST collection even after GST tax cuts as well as increasing EPFO contributions. Jobless growth creates inequalities and hence - for social justice we need growth driven by increased labor participation.

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