Himanshu Kohli, Co-founder of Client Associates, believes that macroeconomic factors pose the greatest risk to India’s economy due to their widespread and interconnected effects on growth, inflation, fiscal health, and financial stability.
In contrast, tensions with the US mainly impact specific export sectors and can be mitigated through diplomacy and trade diversification, he said in an interview to Moneycontrol.
Kohli said that the earnings downgrade cycle hasn’t fully concluded, but the tailwinds from robust rural demand, favourable commodity price trends, and accelerating infrastructure spending further underpin corporate profitability, setting the stage for a clearer earnings recovery going forward.
Most experts anticipate a pick-up in urban consumption in October. Do you share this view, and do you think it will be sustainable in the coming quarters?
We anticipate a moderate urban consumption pick-up in the near term, driven by a confluence of favourable drivers: the festive season likely generating Rs 12-14 lakh crore spending, benign headline inflation at 2.07% driven by negative food inflation and GST reforms boosting consumer sentiment. This should aid a pickup in urban demand, as evidenced by early signs of an uptick in auto and FMCG sectors, while UPI transactions indicate a double-digit growth across segments. Salary increments of ~9.2% bode well for improved purchasing power.
Sustainability through 2026 appears achievable given robust employment generation, rising disposable incomes and RBI's forward guidance indicating policy space for further easing alongside several credit-flow boosting measures. However, key risks to this view include global trade uncertainties, INR weakness, and bifurcated spending patterns across income segments.
The recovery will be gradual rather than sharp, with festive momentum extending through December 2025, followed by sustained moderate growth in H1 2026. Maintaining employment growth, managing global headwinds, continuing the reforms momentum and ensuring policy continuity will be key to sustainable growth.
Are you more concerned about tensions with the United States than about macroeconomic factors and earnings growth?
Macroeconomic factors pose the greatest risk to India’s economy due to their widespread and interconnected effects on growth, inflation, fiscal health, and financial stability. Challenges such as external imbalances, inflationary pressures, and fiscal constraints can trigger broad economic disruptions.
In contrast, tensions with the US mainly impact specific export sectors and can be mitigated through diplomacy and trade diversification. Earnings growth issues, though vital for investor confidence, are cyclical and improve with supportive macro conditions. Ensuring monetary prudence, fiscal discipline, and structural reforms is essential to strengthen economic resilience and sustain long-term growth amid global uncertainties.
One of the global investors expects the earnings downgrade cycle to continue in India. Do you agree with this outlook?
The earnings downgrade cycle hasn’t fully concluded, but the worst may be behind us as Q1 FY26 results demonstrated surprising resilience. At an aggregate level, the pace of negative downward revisions have receded over the past few months.
Accommodative monetary policy—anchored by a steady 5.5% repo rate and targeted liquidity measures—combined with proactive fiscal stimulus through higher capital expenditure, is laying a strong growth foundation. GST reforms, including rate rationalization and improved input-tax credits, are easing working-capital pressures and boosting consumption.
Tailwinds from robust rural demand, favourable commodity price trends, and accelerating infrastructure spending further underpin corporate profitability, setting the stage for a clearer earnings recovery going forward.
Do you believe the rate-cut cycle in the United States will continue, given their focus on preventing further increases in the unemployment rate?
In its recent policy meeting, the Fed opted to cut interest rates by 25 bps, bringing the fed fund rate down to a range of 4% - 4.25%. Chair Jerome Powell explained that this decision was driven by a “shifting balance of risks” between the Fed’s dual mandate i.e. price stability and full employment. The growing downside risk in the labour market was a key factor, with Powell describing current conditions as characterized by “low hiring and low firing.”
The Fed’s updated economic projections suggest that further rate cuts remain on the table, with two more possible this year. While the focus has shifted towards labour market weakness, Powell also noted that the full impact of tariffs on inflation is still unfolding while their effect so far has been moderate, stating that the path forward is “not incredibly obvious”.
Have you made significant gains from gold, which has seen persistent buying interest for several months despite occasional corrections? Do you see any major threats to gold's outlook, considering the strong buying pressure? Is it overbought, or do you believe there’s more upside potential?
Gold has delivered exceptional returns over the past two years, with a CAGR of ~45% from late 2023 to 2025. This rally has been driven by sustained central bank purchases, rising geopolitical tensions, and a broader trend of de-dollarization.
While the recent surge has been significant, the underlying fundamentals, particularly continued central bank buying and reducing confidence in the US economy and its currency as a safe haven asset remains supportive.
That said, over the long term, we view gold more as a portfolio diversifier due to its uncorrelated behaviour/characteristics than a consistent alpha generator, given its historical tendency to underperform equities over longer time horizons.
Do you expect India to surprise with stronger-than-expected GDP growth in the coming quarters?
While short-term risks persist due to US tariffs, trade tensions, and broader global uncertainty, the long-term macroeconomic outlook for India remains robust. Several structural factors continue to support this view including strong government spending, a pro-growth stance by the RBI, ample system liquidity, and an improving corporate earnings trajectory expected from Q3 FY26 onward.
Additionally, recent GST cuts along with income tax cuts are likely to boost consumption going forward, while a healthy monsoon and rural recovery, subdued inflation, and resilient corporate balance sheets further strengthen the case for sustained GDP growth in the quarters ahead.
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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