Daily Voice: No Fed rate cuts soon? Sandeep Bagla says next move may be a hike, not a cut

Sandeep Bagla is the CEO of TRUST Mutual Fund

• US Fed likely to be on a long pause amid rising inflation and slowing growth
• Next Fed move more likely to be a hike than cut
• Believe West Asia war to be a long-drawn war between US and Iran

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After the FOMC outcome, TRUST Mutual Fund CEO Sandeep Bagla expects the US Federal Reserve to stay on an extended pause, caught between stubborn inflation and slowing growth, with the next move more likely a rate hike than a cut.

In an interview to Moneycontrol, Bagla also warned that the West Asia conflict could turn into a prolonged US-Iran standoff, weighing on global markets. He sees FY27 as a muted year for equities, as higher oil and metal prices squeeze margins, dent earnings and curb demand, while flagging metals and commodities as a potential contra play.

What is your view on the latest US Federal Reserve policy meeting? Do you rule out further rate cuts in 2026 amid higher-than-expected inflation following tariff hikes and rising oil prices due to the West Asia crisis?

US Federal Reserve is likely to be on a long pause, torn between rising inflation and slowing growth. The next move is more likely to be a hike than cut. The incoming Fed Chairman Kevin Warsh is a known balance sheet hawk, who would want to reduce the amount of money floating in the system to ward off potential inflation.

Do you see any possibility of easing of oil price-related concerns, even though tensions between the US and Iran persist?

It appears that it will be a long-drawn war between US and Iran and while there have been countries who are releasing strategic reserves, it is to meet the immediate shortfall requirement and it will lead to sustained demand as these countries are going to replenish and rebuild their strategic reserves in the future. It is possible that we see further Dollar weakness in the future, which could further support oil prices.

Do you expect FY27 to be a strong year for the market, with the potential to deliver around 15 percent returns?

FY27 is likely to be a muted return generator from equity markets perspective as the after-effects of the increase in metals and oil prices are likely to result in margin compression, lower earnings and suppressed demand as well. In the unlikely case of central bankers infusing large amounts of liquidity the risk markets could rally.

However, it is unlikely as inflation fears will keep central bank actions in check. One should keep expectations low as broad markets are unlikely to give a return of 15%. We are going through a phase where markets are consolidating and are likely to reset lower in the midst of geopolitical uncertainty higher inflation and lower economic growth

Are you bullish on the power sector, considering the stronger push for renewable energy, especially after recent oil-related concerns?

We are constructive on the power sector especially in the renewable space. We are also bullish on infrastructure providers like transmission companies power cables there is likely to be incremental demand from data centers so the power sector looks to be in a good space for the next two to three years.

Do you still maintain your FY27 earnings growth expectations despite the recent oil price spike triggered by Middle East tensions?

The FY27 earnings growth estimates would have to be revised downwards. As we go forward and quarterly results come in, earnings are likely to be revised lower. Lower estimates are likely to provide a reality check and provide some amount of headwinds for the equity markets performance.

What is your contra bet for FY27?

We believe there could be a race to accumulate real assets and the beneficiaries could be companies dealing in commodities, metals and precious metals like gold and silver.

So a contra bet would be metals and commodities for 2027. We think there could be significant upside if people lose faith in the Dollar and diversify.

Is this a good opportunity for investors to buy bank stocks that are currently trading at lower valuations?

The banking space seems to be reasonably valued than before and with the credit cost being low and the credit ratio picking up it appears to give a good risk reward ratio in favour of the investors at this point of time. However, we are unlikely to be overweight in the sector if the economy shows signs of slowing down.

Do you expect the RBI to send a cautious signal through its policy in April, especially after the spike in oil prices amid West Asia tensions?

It is a tough time for policy makers. Stagflationary conditions make decision making difficult. Slowing growth is visible and warrants lower rates. Inflation moves higher due to commodity price rise, and appears to be transitory and regulators try to ‘look through’ the rise in inflation and delay monetary tightening to avoid further slowdown. The interest rate swap curve rate hike later this year. It would be prudent for RBI to acknowledge the situation and forewarn the market participants in the RBI policy.