Daily Voice: RBI liquidity stance trumps rate cuts, says Nimesh Chandan; sees 2026 equity gains

In fact, we are quite optimistic about market gains in 2026. India will experience faster economic growth in 2026. Earnings momentum is also likely to accelerate. Consumption will be the main driver of the economy.

Nifty continues to trade below its intrinsic value. The domestic macroeconomic conditions are gaining strength, supported by government initiatives, benign crude prices, and lower inflation. As a result, the domestic consumption demand is improving, which will drive GDP growth and corporate profitability.

A potential trade agreement with the US and EU could unlock export opportunities. Meanwhile, lower interest rates and rising capacity utilisation are paving the way for a revival in private capex. Despite global uncertainties, with the combination of strong earnings momentum, resilient domestic demand, and bottom-up opportunities across large, mid, and small caps, we believe the markets are poised for an upcycle from here on.

Do you remain strongly positive on the power and defence themes, where indigenization is gaining momentum?

While we are positive on the power and defence themes, we are selective and are invested in certain sub-segments within these themes.

In the power sector, surging domestic demand, fuelled by manufacturing expansion, data centres, and AI adoption, continues to drive investment across generation, transmission, and distribution. We believe power transmission and distribution, and power equipment have long runways for growth with multi-year megatrend potential.

In defence, India is the world’s largest arms importer, but a strong push towards self-reliance is transforming the industry. The defence budget has grown at a CAGR of 8–9% over the last two decades, driven by regional security needs. While the sector has given robust returns and elevated valuations in pockets, investors need to be selective and invest in companies that actually benefit from the indigenisation theme.

Do you believe domestic flows and SIPs will continue to remain strong even in 2026?

Yes, we believe SIP flows will remain strong in 2026. Over the past year, India has demonstrated remarkable resilience despite global headwinds, supported by strong domestic fundamentals and consistent DII inflows that have supported the market during periods of volatility.

As discretionary income levels improve, thanks to developments like the recent GST revision, a larger share of incremental savings is likely to flow into mutual funds, particularly through systematic routes.

What do you expect from the RBI in the December policy meeting? Is it important to closely monitor the RBI’s actions on the liquidity front?

Ultra-low inflation clearly provides policy space, but there is no urgency to cut rates given resilient growth trends. While a 25-bps cut remains possible, it’s unlikely to be the dominant driver for long-term yields, which are more sensitive to fiscal dynamics and next year’s budget.

What deserves closer attention is liquidity. Last month’s tightening, driven by tax outflows and foreign exchange intervention to stabilize the rupee, raised expectations of RBI action. As a result, monitoring RBI’s liquidity stance is critical, as it will influence short-end rates and funding conditions more immediately than a rate cut.

Do you expect a significant improvement in IT companies’ revenue growth in 2026 compared to their performance over the past 12 months?

The recovery in the IT sector continues to be closely linked to the US economic outlook. It may take some time before business sentiment improves for IT companies. It is critical to assess how much of this downside is already priced into current valuations, as the market pricing may have anticipated and factored in some of these challenges.

Do you think a Fed rate cut now looks more likely in December after reviewing recent speeches by Fed officials and the latest economic data points?

In the light of the recent government shutdown, US Fed Governor Powell quite rightly said during a recent press conference, “What do you do if you’re driving in the fog? You slow down.” His ‘fog’ analogy captures the current policy dilemma well—navigating without clear visibility. The prolonged data blackout has deprived the Fed of critical labour and inflation readings for October and November.

That said, the balance of recent speeches tilts toward a December rate cut, with labour market fragility emerging as a key driver. Markets now assign roughly an 80% probability to such a move, making it increasingly likely, though far from a foregone conclusion.

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