Daily Voice: Public capex to drive FY26 growth; February rate cut likely, says fund manager

Karan Doshi is the Fund Manager & Senior Equity Research Analyst at LIC Mutual Fund Asset Management

"The budget is expected be non-inflationary in nature and its focus will be on policy continuity in terms of capital spending, fiscal consolidation with consumption support," said Karan Doshi is the Fund Manager & Senior Equity Research Analyst at LIC Mutual Fund Asset Management said

According to him, public capex will likely be the primary growth driver in FY26. With its higher multiplier effect, infrastructure spending is expected to generate jobs, stimulate private investments, and boost demand, said Karan more than 10 years of experience in the equity research.

On the MPC meet scheduled next month, he believes while February rate cut may remain a high possibility, its realisation depends on favourable inflation dynamics and the absence of external shocks.

Are you optimistic on the IT sector, especially after the announcement of Q3 earnings by all leading companies, or would you prefer to wait for one more quarter before adopting a positive view?

Past 1-2 years, were challenging year for IT companies. IT revenue growth in the US is highly correlated to US Real GDP growth. Certain green shoots in demand environment especially in the BFSI, which were on the fence, are back in the ring and could drive deal announcements across North America and Europe. Two key themes emerged in Q3FY25 – (1) deal ramp ups with low/no project cancellations, and (2) improvement in core markets (North America and Europe) and core vertical (BFSI). The year started on a positive note, with the sector’s earnings downgrade cycle ending after 3-4 quarters.

Do you believe the US Dollar Index will move higher toward the 130-150 zone in the coming months?

In last 25 years, Dollar Index has touched a high of 120 in FY01-02. The reason for Dollar Index to inch up currently is FII (foreign institutional investor) money rushing back to USA with Trump in power as there is bullishness related to US economy and USA is expected to levy duty on several goods which is inflationary in nature.

On the contrary several deflationary events are likely to cool down this pressure. Example cease fire in Israel Hamas war could re-open Suez canal which is deflationary. Similarly, war between Russia and Ukraine is also expected to cool down.

Lastly India’s own balance sheet remains robust with reserves only slightly less than the external borrowing. Along with this any upswing in US economy can lead to higher dollar inflow by IT companies which would be direct beneficiaries.

Which announcements in the Budget could lift market sentiment?

The budget is expected be non-inflationary in nature and its focus will be on policy continuity in terms of capital spending, fiscal consolidation with consumption support.

Public capex will likely be the primary growth driver in FY26. With its higher multiplier effect, infrastructure spending is expected to generate jobs, stimulate private investments, and boost demand. Other contributors include export-focused initiatives, better center-state capex coordination, and targeted rural spending under programs.

Do you believe strong growth will return from the first quarter of FY26?

The Indian economy is at a pivotal moment, poised to enter a new growth cycle. A major opportunity lies in the ongoing trend of supply chain diversification, as companies around the world seek to reduce their dependency on China. This shift offers India the chance to become a significant player in the global supply chain network.

Moreover, the confluence of India's favourable demographics, rising productivity levels, and the ongoing trends in globalization likely to provide structural support for a higher growth trajectory. Additionally, the government’s focus on improving infrastructure, digitalization, and manufacturing capabilities may provide the foundation for sustained growth in the medium to long term.

As these trends unfold, India stands poised to become a key player in the global economy, benefiting from both internal reforms and external changes in global trade dynamics. With a growing middle class, increased domestic consumption, and a favourable business environment, India is likely to experience a period of robust growth in the coming decade. Given these factors, there is still a highly optimistic about the Indian growth story.

What do you expect from the RBI policy in February?

While a February rate cut may remain a high possibility, its realisation depends on favourable inflation dynamics and the absence of external shocks. If inflation moderates to the 4% range and growth concerns persist, the RBI may step in to support the economy. However, a lot hinges on how global and domestic factors play out in the coming time.

How has the company adjusted its equity strategies to navigate the current market landscape and maintain consistent returns for investors?

In the short term, markets are expected to remain volatile, driven by news flow, liquidity, economic outlook, and geopolitical events. Early signs of corporate earnings slowdown are evident, led by weak consumption demand, reduced government spending, and slower capital expenditure.

Over the next few months, investors adopting a more risk-averse stance is anticipated. Historically, during such periods, quality stocks have tended to outperform. It would be prudent for investors to realign their portfolio positions to focus on these attributes, ensuring resilience and stability amidst uncertainty.

At the portfolio level, we look for companies in a favourable business cycle, with a promoter track record of efficient capital allocation, ethical governance practices, strong balance sheet, high return on capital and higher growth rates compared to peers. Within these, we prefer to select stocks of businesses that are scalable in nature. Scalability is important to us when evaluating a business and we value stocks accordingly. A growing business tends to compound profits over a long period, creating wealth for investors.