Daily Voice: Threshold for RBI choosing to cut rates in August quite high, double-digit vehicle volumes growth in H2FY26 can't be ruled out, says PNB MetLife's CIO

Sanjay Kumar is the Chief Investment Officer at PNB MetLife

According to Sanjay Kumar, Chief Investment Officer at PNB MetLife, the threshold for Reserve Bank of India to cut rates in August is quite high.

"Inflation data, along with outlook for good monsoon rainfall and benign global commodity prices, has led to expectations that inflation for FY26 may significantly undershoot RBI’s projection of 3.7%, which potentially opens space for additional monetary policy easing measures," he reasoned.

He believes the auto sector is gearing up for a robust second half in FY26, largely driven by a boost in disposable incomes across both rural and urban India. "If the momentum continues, we could see double-digit growth in vehicle volumes during 2HFY26," said Sanjay Kumar in an interview with Moneycontrol.

Do you believe June quarter earnings (Q1FY26) will be significantly better than those in the March quarter? If so, do you expect this to drive a rally in the equity markets for the remainder of the year?

The last few quarters were characterized by tariff-related tensions, heightened geopolitical concerns, and resultant market volatility. In the ongoing Q1FY26 results season, we expect improvement in earnings driven by favourable base, strengthening domestic macro-economic outlook, supportive monetary policy stance, and benign inflation.

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Sanjay Kumar

CIO|PNB Metlife Insurance

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Monsoon is progressing well, which should support the rural economy, while improvement in urban demand is expected to be driven by the positive effect of income tax benefits announced in the Union Budget. Directionally, this quarter should mark the beginning of a broad-based earnings recovery driven by both investments as well as consumption sectors, implying improving sectoral breadth.

A supportive monetary and fiscal policy stance, improving earnings growth trajectory, and sustained domestic flows are expected to drive markets forward. Stability in the global financial markets and a favourable outcome of the India-US trade negotiations would further aid the ongoing market buoyancy.

Do you anticipate a strong recovery in auto volumes during the second half of FY26? If yes, do you currently hold sizeable exposure to the segment?

The auto sector is gearing up for a robust second half in FY26, largely driven by a boost in disposable incomes across both rural and urban India. In rural areas, the above-average monsoon is likely to help farmers with better crop yields and lower irrigation costs. Kharif sowing acreage is reportedly up 11% year-on-year, which implies more money flowing into rural households. This is good news for vehicle sales, especially two-wheelers and entry-level cars, which tend to do well when rural incomes rise.

Urban consumers are also expected to loosen their purse strings, thanks to recent income tax cuts. While the exact figures vary, early estimates suggest a 5–10% increase in disposable income for middle-income earners. With more cash in hand and easier access to financing, many may consider upgrading or replacing their vehicles in the coming months.

Put together, these trends paint a positive picture for the auto industry. If the momentum continues, we could see double-digit growth in vehicle volumes during 2HFY26. It’s a welcome shift after a period of sluggish demand, and signals that both rural resilience and urban recovery are kicking in at just the right time. We have a meaningful exposure to auto and auto ancillaries companies across our various portfolios.

Do you prefer betting on the discretionary space over the staples sector, considering the potential for stronger earnings performance?

In the last two years, the consumption sector has been severely impacted due to high inflation and slowing economic growth, denting the disposable incomes of most Indians. The impact was less severe on staples categories, but the discretionary categories, such as apparel, QSR, and footwear, have seen a higher impact.

Going forward, we expect overall consumption demand to revive on the back of favourable monsoon, improving farm incomes, and a rise in disposable incomes due to recent income tax changes. Discretionary categories are expected to be bigger beneficiaries due to the increasing share of wallet as well as the pent-up demand from the last two years getting addressed.

Moreover, changing demographics will also be a tailwind for discretionary categories because people of younger generations are seen spending more on experiences. All these factors may result in higher revenue growth for discretionary categories and a better earnings growth profile, given the operating leverage at play.

Given the ongoing decline in inflation, do you see the possibility of an interest rate cut in the RBI’s August policy meeting?

Expectations for further rate cuts had significantly reduced after the RBI’s monetary policy committee reverted its monetary policy stance to ‘neutral’ in the June meeting, and the Governor stated that ‘monetary policy is left with very limited space’ to take further easing measures. However, inflation data released since then, together with the outlook for good monsoon rainfall and benign global commodity prices, particularly for crude oil, has led to expectations that inflation for FY 2026 may significantly undershoot RBI’s projection of 3.7%.

These developments, in our view, potentially open space for additional monetary policy easing measures. The timing of these measures, however, may depend on the RBI gaining confidence on the sustainability of the lower inflation trajectory. As such, the threshold for the RBI to cut policy rates again in August is quite high.

Do you maintain a strong bullish view on hotels, travel, and quick commerce (Q-commerce) names from a medium-term perspective?

We hold a structurally bullish outlook on hotels, travel, and quick commerce sectors over the medium to long term, driven by a confluence of transformative macro and microeconomic tailwinds. The post-pandemic recalibration of consumer behaviour has catalysed a surge in experiential spending, with travel and hospitality emerging as key beneficiaries. Rapid digitization and mobile-first consumption patterns are reshaping service delivery, enabling hyper-personalization and frictionless access.

In hospitality, a pronounced demand-supply mismatch—particularly in mid-tier and premium hotel inventory—presents a compelling opportunity. India’s demographic dividend, with a digitally native and aspirational youth cohort, is fuelling momentum in discretionary consumption and urban mobility.

Quick commerce, once a convenience, is now a lifestyle staple, underpinned by logistical innovation and behavioural stickiness. We believe these sectors are not merely cyclical plays but represent secular growth stories poised to benefit from structural tailwinds and evolving consumer ecosystems.

Do you have significant exposure to the healthcare, financial services, and consumer technology segments in your portfolio?

Healthcare, Financial Services, and Consumer Technology are high-growth sectors with a long runway for growth. We have been constructive in these sectors with a strong bottom-up approach. However, the growth drivers for each of these segments differ.

For the healthcare sector, rapidly improving health insurance penetration, rising demand for quality healthcare, and fast-growing medical tourism are driving demand. The rapid growth in the financial services sector is driven by a shift from physical to financial savings, improved digitization, and favourable demographics.

Consumer technology is a secular and multi-sector theme accelerated by an evolving digital ecosystem, changing consumption patterns, and the digital-first approach of consumer-tech service providers and consumers.

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