Given the current situation, it's likely the Indian market will see a 5% correction from its current levels if any more negative news emerges regarding tariffs, Shailendra Kumar, the chief investment officer at Narnolia Financial Services said in an interview to Moneycontrol.
Should the tariff situation persist, he anticipates Indian policymakers will step in with significant fiscal stimulus to boost domestic consumption.
After the recently imposed stiff tariffs, Shailendra Kumar now anticipates real GDP growth will slow closer to 6%, a downward revision from the previously expected 6.5%. "This forecast could be improved if there is a quick resolution to the tariff situation or if strong measures are implemented to boost domestic consumption, he said.
Do you expect a sharp global economic slowdown, regardless of tariff actions?
Global growth is slowing, with forecasts predicting a drop of half a percentage point to 2.5%. If these projections hold, the 2025 could be on track for the slowest average global growth since the 1960s. This slowdown is also visible in corporate earnings, which have been lagging.
Apart from a few tech companies benefiting from the AI boom and some financial firms, most sectors in developed economies are experiencing either low single-digit or negative growth.
If yes, does that imply investors should focus on domestic-oriented sectors and stocks, and avoid outward-facing sectors?
Right now, domestic-focused sectors appear more appealing than export-dependent companies. Most export-oriented firms haven't adjusted to a point where they'd be considered attractive, even with a flat growth outlook, based on their strong business models and balance sheets.
Do you see the possibility of another 5% correction from current levels, even though most of the risk related to the 50% tariff appears to be already priced in? Or do you think the noise around tariffs will subside soon?
Given the current situation, it's likely the Indian market will see a 5% correction from its current levels due to negative developments in tariffs. Our base case is that Nifty has likely bottomed out in early April. But now, as we trade some 10% points higher than that, we could see a 5% drop from current levels if any more negative news emerges regarding tariffs.
Ongoing tariff uncertainties and a slowdown in earnings growth are likely to keep the Nifty index in a sideways correction phase for the next six months. The tariff situation with the US remains fluid, and while a potential agreement between the US and Russia could offer some breathing room, the underlying trust issues created by these tariffs will take a long time to mend. Should the tariff situation persist, we anticipate Indian policymakers will step in with significant fiscal stimulus to boost domestic consumption.
Do you believe the long-term growth story for defence, auto, and industrials remains intact?
The long-term outlook for the defense, auto, and industrial sectors is strong. However, investors should be cautious. Defense sector valuations appear stretched, while the industrials sector requires a highly selective, stock-specific approach. Conversely, certain auto and component companies are good buys at their current prices.
Do you strongly believe that India will achieve 6.5% GDP growth in FY26 despite tariff headwinds, rather than settling at 6%?
The recently imposed stiff tariffs on India are expected to have a tangible impact on the nation's economic growth for FY26. We now anticipate real GDP growth will slow closer to 6%, a downward revision from the previously expected 6.5%. This forecast could be improved if there is a quick resolution to the tariff situation or if strong measures are implemented to boost domestic consumption. Given the recent trend of robust tax collections, a potential solution could be to reduce GST rates to stimulate the economy.
Do you expect the fiscal path to lean toward consolidation and the monetary policy stance to shift toward easing in the coming months?
To counteract the impact of recent tariffs on India, we anticipate a shift in economic policy. While we expect the monetary policy to become more accommodating, the immediate need is for an expansionary fiscal policy.
Additionally, as inflation has declined, the GDP deflator for this financial year will be lower than expected. This will result in a nominal GDP growth for FY26 closer to 8.5%, significantly lower than the 10.1% forecasted in the budget, which will negatively affect the government's budgetary calculations.
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.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
