"We should also remain cautious about significant upside in the market, as valuations in the broader mid and small-cap segments haven't fully corrected," said Shailendra Kumar of Narnolia Financial Services in an interview to Moneycontrol.
According to him, the upcoming festive season will be a crucial indicator of broad-based consumption growth. Further, opportunities arising once current global trade uncertainties subside will be key to the next phase of the market rally, said the Chief Investment Officer at Narnolia.
What is your interpretation of the RBI MPC’s monetary policy decision?
The recent policy decisions by the Reserve Bank of India are characterized by three significant implications. Firstly, it conveys a clear expectation of continued soft inflation for India. Secondly, the RBI appears determined to accelerate India's economic growth beyond the presently forecasted 6.5 percent. Thirdly, and significantly, the Indian economy is now entering a phase that directly contrasts the first half of 2024. That period witnessed a confluence of fiscal, monetary, and regulatory tightening, leading to the current deceleration in economic activity and corporate earnings. Consequently, the RBI's current measures, in conjunction with broader fiscal and regulatory easing, are poised to foster a resurgence in both economic expansion and corporate earnings in the forthcoming quarters.
Do you expect a further 25–50 bps cut in the repo rate in the remaining part of 2025?
The RBI's MPC has moved to a 'neutral' stance from its previous 'accommodative' position and has also said that they have front-loaded the rate easing. The world economy is navigating a turbulent period, and the RBI seems to be proactively positioning India's monetary policy. While we'll gain more clarity on the future direction of interest rates in the third quarter of the current calendar year, we anticipate at least one more 25 basis point rate cut.
Do you expect India to decouple from the decelerating US growth path?
India is currently a strong beacon of growth, with its economic path largely determined by domestic factors. Its appealing demographics, solid fiscal health, and steady inflation and interest rates make it the top long-term investment prospect globally.
Despite India's strong position, the United States remains a dominant force in the global economy. If the pace of deceleration in the US is slow, India has a real chance to decouple and continue its smooth growth. Nonetheless, a sudden severe downturn in the US economy or financial markets could still significantly affect global performance, including India's, at least in the short term.
Are you cautious on consumer staples and export-oriented goods and services?
Overall, we remain cautious on these sectors, though we're actively seeking out exceptions. In consumer staples, despite generally low mid-single-digit growth, a few companies show promise, largely due to anticipated margin expansion as raw material prices ease for them.
For export-oriented goods, we're awaiting more clarity regarding tariff issues. Meanwhile, export-oriented services companies offer more predictable growth, but their current valuations lead us to wait for better entry points.
Do you think the auto sector is relatively problematic at a global level due to ongoing supply chain issues?
While global auto and auto component makers are feeling the pinch from China's demand deceleration and US trade tariffs, India's industry is largely unaffected. Their strength lies in their strong domestic market focus and export activities predominantly to emerging economies, insulating them from the current international headwinds.
Do you think most negative factors have already been discounted by the market? Will it continue to consolidate until the announcement of June quarter earnings? What are the next triggers for the market?
What's particularly evident about the Indian market is its resilience against sharp declines. Past significant price corrections have invariably stemmed from either investor over-leveraging, corporate over-leveraging, or a dip in corporate earnings. None of these conditions currently exist. But we should also remain cautious about significant upside in the market, as valuations in the broader mid and small-cap segments haven't fully corrected.
The upcoming festive season will be a crucial indicator of broad-based consumption growth, which, along with opportunities arising once current global trade uncertainties subside, will be key to the next phase of the market rally.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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