"It is likely that the Reserve Bank of India (RBI) will continue to remain neutral and assess how effectively the earlier rate cuts are transmitting through the banking system," Raghvendra Nath, MD at Ladderup Asset Managers, said in an interview to Moneycontrol. This usually takes a few months to reflect.
According to him, if inflation remains within the RBI’s comfort zone, and particularly if core inflation continues to ease, the door may open for another round of rate cuts. However, any such move is more likely in the second half of FY26, he believes.
On the recent 25% US tariff on India, he said, "If these tariffs were to stick, which I am hopeful they may not, it may have an impact on the Indo-US diplomatic ties that have improved significantly over the last decade or so.
Do you believe that following the 25% tariffs, less than half of India’s exports to the US will actually be impacted?
It is true that the US is the largest trading partner of India. Out of India's total exports of $750 billion, almost $180 billion is to the US. However, out of this number, approximately $100 billion is allocated to software services. So, the exports on which the 25% tariff is being discussed or debated are only around $80 billion of merchandise exports. Even in this, around $10 billion is in pharma exports where the tariffs haven’t been imposed. That said, about 100-150 companies in the Indian Equity market may probably feel the pinch of the 25% tariffs that have been imposed on India.
Looking at the past 6 months and the way the US administration has behaved, we can confidently say that this is more of a bargaining tactic than something real. Unfortunately, announcing something like this, unilaterally, amid trade negotiations, is not in good taste. I think the government is acting responsibly and in a mature fashion by not aggressively reacting to the tariffs or the associated comments around India’s strategic interests.
If these tariffs were to stick, which I am hopeful may not, it may have an impact on the Indo-US diplomatic ties that have improved significantly over the last decade or so. India has increasingly positioned itself as a strategic ally for the US in South Asia, and we had reasons to believe that the trade relationship would reflect that progress. The latest statements from the US Presidents have added to the surprise, especially when the recent negotiations had suggested a strengthening of the bilateral relationship.
Do you think the global trade slowdown could exert additional disinflationary pressures on India?
India’s contribution to global trade remains relatively modest, contributing roughly 4% to the total global trade volumes. Our economy has historically been domestically driven, and exports have been a relatively smaller portion of the GDP. Given this structural setup, a global trade slowdown is unlikely to have any significant inflationary or disinflationary pressure for India.
During a trade slowdown, India can have an impact on reducing inflation as import numbers will likely go down. India’s import basket is heavily weighted in oil and gold. Gold, while a sizeable portion of imports, does not partake in the consumer price index (CPI) calculation, hence not influencing inflation metrics. Oil prices have remained relatively stable in recent months, especially as the geopolitical tensions in the Middle East have eased. So, from a pricing standpoint, the current scenario does not indicate any immediate upward pressure on inflation.
There is an increasing desire that India should improve its exports. The government has taken substantial steps to help build a robust manufacturing base in India. Production-linked incentives (PLI) have significantly helped set up manufacturing capacities in a range of industries. Large global players like Apple, Foxconn, and others have started expanding their operations in India, and we’re seeing signs of supply chain integration, particularly in electronics manufacturing. With certainty it can be said that India’s share of global trade will only grow in the years to come from where it is now.
While most experts expect the RBI to maintain the status quo in its August policy meeting, many see a strong possibility of a rate cut in October. Do you agree with this view?
RBI has adopted a measured approach in recent months. By frontloading rate cuts earlier in the cycle and simultaneously announcing its intent to inject ample liquidity into the banking system, by way of reducing Cash Reserve Ratio (CRR), there is little likelihood that the RBI will reduce rates in this or the next policy. They will likely continue to remain neutral and assess how effectively the earlier rate cuts are transmitting through the banking system through reduced lending rates, improved credit availability, and greater consumer confidence. This usually takes a few months to reflect.
Moreover, the consumer confidence has been shaped by recent macro uncertainties and inflationary pressures, so a sustained improvement in sentiment will be critical for driving higher discretionary spending.
Monetary policy transmission often operates with a lag, and the RBI will likely want to give the economy a few more months to absorb and reflect the impact of those measures, particularly in credit growth, consumption activity, and inflation trends.
If inflation remains within the RBI’s comfort zone, and particularly if core inflation continues to ease, the door may open for another round of rate cuts. However, any such move is more likely in the second half of FY26. For now, the RBI is expected to maintain its neutral stance and continue monitoring both domestic and global macroeconomic indicators before taking any further policy action.
Given the potential for another interest rate cut by the RBI later this year, does the auto sector look attractive from an investment perspective?
Declining interest rates create a conducive environment for boosting discretionary spending, and this segment has seen sluggish growth in the last couple of years. This includes not only automobile purchases but also demand for housing and other white goods. However, we may not see an immediate improvement in numbers as there is usually a lag between interest rate cuts and the pick-up in demand. We may see some improvement in discretionary expenditure, but this should be visible only after 3 to 6 months.
Have the June quarter earnings fallen short of your expectations?
The June quarter earnings have turned out to be marginally better than what the Street had expected. Of the 50 Nifty companies, 38 have reported their results so far. On an aggregate basis, earnings have grown by approximately 7.5% year-on-year, while revenue growth has come in at around 6%. Compared to the subdued numbers last quarter, this performance is considerably better.
Looking ahead, the low base of FY25, combined with favourable macro tailwinds such as softer raw material prices due to a good monsoon, and a likely pickup in rural consumption, paves the way for better corporate earnings in FY26.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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