Daily Voice: India's market has limited downside risk, says Green Portfolio's Divam Sharma

Absolutely, we expect a significant boost to India’s exports if the US-India mini trade deal is finalised before July 9. India’s growing importance in global trade, especially as companies diversify away from China, positions it as a preferred manufacturing and sourcing hub. Sectors like electronics, particularly mobile phones are already seeing strong export momentum, and the deal could further accelerate this trend. Mobile phone exports, led by global brands like Apple and Samsung, soared by 55 percent to Rs 2 lakh crore in FY25, making smartphones India’s largest export commodity.

Additionally, labour-intensive industries such as textiles and footwear are likely to benefit from tariff relief, supporting both export growth and job creation. With the US still in the process of rebuilding its own supply chains, India stands out as a reliable partner for American businesses seeking alternatives. Overall, this deal could mark a pivotal step in deepening bilateral trade ties and cementing India’s role in global supply chains.

Most experts anticipate a strong earnings recovery in the second half of FY26. Does this imply muted or single-digit earnings growth in the first half, followed by double-digit growth in the second half?

Yes, we do expect the same. The initial part of the year may be weighed down by cautious consumer sentiment, lingering global supply chain disruptions, and the aftereffects of weak demand in some export-oriented sectors. However, domestic consumption is expected to remain resilient, providing a buffer against external headwinds.

As the year progresses, improved business confidence, easing supply chain constraints, and a pickup in both rural and urban demand should support a stronger earnings rebound. The second half is likely to benefit from festive season spending, potential policy support, and a more stable global environment, all of which could drive a healthy recovery in corporate earnings.

Do you expect strong growth in the automobile sector in the coming months, supported by income tax cuts, interest rate reductions, and the festive season?

Yes, the Union Budget’s increase in the income tax exemption limit is expected to boost discretionary spending, particularly among the middle class, directly benefiting two-wheeler and passenger vehicle demand. RBIs multiple rate cuts this year have lowered borrowing costs, making vehicle financing more accessible and improving consumer sentiment.

Recent data underscores this momentum: India’s auto industry grew 7.3 percent in domestic sales in FY25, with exports rising by over 19 percent. Passenger vehicle sales have seen steady gains, and two-wheeler sales are projected to rise by over 12 percent this year, nearing all-time highs. Rural consumption remains a key driver, aided by a strong harvest and rising rural incomes, while the festive season has historically led to double-digit sales growth. This confluence of factors positions the sector for robust expansion ahead.

Now that the worst seems to be behind us, do you see more tailwinds than headwinds for the market in the remainder of the current calendar year? Does this suggest that downside risk is very limited and there is a significant chance of a sharp upside in the second half of 2025?

The outlook for Indian markets in the remainder of 2025 is increasingly optimistic, with tailwinds now outweighing headwinds. Robust domestic fund flows, as seen in record-high SIP contributions and mutual fund AUM, continue to provide a strong foundation for market stability and growth. Foreign institutional investors, after a cautious start to the year, have begun returning, and further FII inflows are expected in the second half as global risk appetite improves and India’s macroeconomic fundamentals remain resilient.

The worst of recent geopolitical and macroeconomic shocks appears to be priced in, and India’s economy is showing strength through stable growth, controlled inflation, and rising global relevance. With domestic consumption holding up and corporate fundamentals looking solid, downside risks seem limited at this stage. This sets the stage for a potential sharp upside in the second half of 2025, especially if global conditions stabilise and policy support continues.

Among private banks, NBFCs, and PSU banks, which do you consider the better bet, and why?

Among the three, PSU banks look especially attractive right now due to upcoming listings of their subsidiaries, which should unlock significant value and boost investor sentiment. NBFCs are also well-placed, with easier access to capital, especially foreign funds as the dollar weakens, and strong growth prospects.

Private banks remain solid, and could benefit from continued capital inflows and potential rerating. However, in the near term, the value unlocking in PSU banks and capital access for NBFCs make them particularly compelling choices.

Do you expect the US Federal Reserve to implement its next rate cut in July or September, considering the pressure from Trump?

We expect the US Federal Reserve to implement its next rate cut as early as July, given the recent softness in unemployment data and continued moderation in inflation. While there is political pressure from President Trump to lower rates, Fed Chair Powell has stated he won’t rule out a cut this month, and a majority of Fed officials support reducing rates in the second half of the year.

The central bank is closely watching economic data, and with job growth losing momentum and inflation remaining contained, conditions are aligning for a possible move at the July meeting. However, some market participants still see a higher probability for a rate cut in September, but the case for an earlier cut is gaining ground as economic headwinds persist.

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