Daily Voice: No near-term triggers for fresh market rally; another 50 bps repo rate cut may be needed, says Ladderup's MD

The Reserve Bank of India’s pivot in policy stance over recent quarters has been largely driven by the cooling inflation trajectory and the need to sustain economic growth. Inflation has remained within the central bank’s comfort zone, and the recent projections suggest continued moderation. At the same time, the transmission of rate cuts into the broader economy has been limited so far, and that remains a challenge.

Despite the earlier policy measures, lending rates have not meaningfully softened across segments, and credit demand still reflects that gap. In that context, a further reduction of around 50 basis points in the repo rate may be warranted to reinforce growth momentum, provided inflation numbers are well within the target range. However, the RBI is likely to take a cautious approach with balancing rate cuts with other liquidity enhancing tools until it is confident that the transmission is adequately reflecting in the system. While growth and earnings have held up reasonably well, sustaining that momentum will require continued policy support.

Do you anticipate several risks to September quarter earnings, even though the likelihood of broad-based earnings downgrades remains low?

Broadly speaking, we are no longer in a situation where widespread downgrades are expected across sectors, but there are pockets of concern. Banking and financial services have remained stable, with credit growth showing signs of improvement and deposit growth is holding up in recent quarters. As equity market volatility continues, there may even be an increasing shift in investor focus on deposits and fixed income products, which could help banks manage their funding mix better.

However, the IT sector continues to face headwinds from global demand moderation, uncertainties around tariffs and slowing discretionary spending by clients. Several brokerage houses continue to remain pessimistic on the earnings growth for large IT service providers. On the other hand, infrastructure and capital goods continue to benefit from sustained government capex, and we expect this trend to continue.

Consumer staples and discretionary, particularly white goods, had been under some stress, but there are early indications of recovery following income tax reforms and revisions in GST rates. Overall, while IT remains a key area of earnings risk, most other sectors appear to be on relatively stable ground at this point.

Do you expect healthy earnings growth to resume from Q3 onwards, or do you believe it is unlikely before Q1 FY27?

There are encouraging signs that earnings growth could resume from the third quarter onwards, though a sharp acceleration may take a little longer. We are likely to see single-digit earnings growth in the near term, with the number of negative surprises reducing compared to previous quarters. While base effects will play a role in improving the optics, underlying business momentum is also gradually picking up.

Double-digit growth may still be a quarter or two away, but that is what markets are looking forward to. The key will be how quickly consumption demand revives and whether sectors like IT can find firmer footing. If current macro conditions hold, particularly with inflation under control and domestic demand gaining traction, the environment will be more conducive to earnings expansion well before FY27.

Do you believe India is falling behind other countries in participating in the global AI boom?

India may not yet be at the forefront of AI innovation in the way some global economies are, particularly in areas of Foundational Models like Large Language Models (LLMs) or Advanced Chip Design, but it would be incorrect to say we are falling behind. The nature of India’s technology sector has always been different. We have historically been strong in services, implementation, and systems integration. That trend continues.

However, AI is now becoming deeply embedded across industries, and Indian new age companies, especially startups, are increasingly using AI in very practical and scalable ways. Whether it's automating supply chains, enabling smarter customer interfaces, or improving data analytics, AI adoption is already underway.

From a macro perspective, as the tech ecosystem in India matures and infrastructure such as edge data centers and digital public goods expands, we will start seeing more homegrown innovation. Over the next five to ten years, the key differentiator will not be who builds the most powerful LLM, but who creates the most impactful use cases. On that front, India is well-positioned to make significant gains.

Do you see power continuing to be a key capex theme, with strong momentum expected through 2030?

Power and energy have always been foundational sectors in any economy, and India is no exception. As the economy continues to grow and rural penetration deepens, the demand for reliable power supply will only accelerate. What we are witnessing now is a structural transformation in this sector. A significant share of upcoming capex is being directed not just toward generation, but also toward modernizing our transmission and distribution infrastructure. At the same time, the push towards renewable energy is creating an entirely new capex cycle. Power will remain a core theme.

Do you believe there are insufficient catalysts for the market to reach new highs in 2025?

At present, I don’t see any near-term triggers that could justify a fresh rally. Although inflation appears to be under control, the global environment remains somewhat uncertain, particularly with trade tensions resurfacing.

Markets are now looking for something more concrete, be it a strong earnings surprise, significant trade measures with major partners, or a major geopolitical breakthrough to justify a move to new highs. In the absence of such catalysts and given that India continues to trade at a premium compared to many global peers, it is likely that the market trades in a narrow range in the near term. That said, over the medium to long term, the structural story remains intact.

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