Daily Voice: Sharp decline in food prices likely to bring CPI inflation down to around 4.5% in Jan, says this fund manager

India’s growth is projected at 6.4% in FY25, marking its lowest rate in four years, driven by a likely decline in manufacturing and investment growth, as per preliminary data released on January 7. Prior to this, the RBI had revised its GDP growth forecast for the current fiscal year to 6.6%, down from the earlier estimate of 7.2% in the December 2024 monetary policy.

With inflation showing signs of moderation, a rate cut in February is anticipated for India. The sharp decline in food prices, particularly vegetables, is expected to bring CPI inflation down to around 4.5% in January.

After closely reading the Union Budget, do you think it has laid a solid foundation for the equity market over the next year?

The budget has the potential to lay a strong foundation for the equity market. The increase in the tax slab from Rs 7 lakh to Rs 12 lakh may boost people's spending power, as they may have more income at their disposal. With more money in the hands of the middle class, this could serve as a catalyst for consumption, driving demand across key sectors. Within consumption, shifts are expected as well, with people possibly moving from essentials to discretionary spending, or upgrading from basic goods to premium products.

Apart from tax relief for the middle class, what has been the most surprising announcement in the Union Budget?

A roadmap for fiscal consolidation respecting FRBM norms was laid out in the budget. Debt to GDP ratio to be brought down to 50% by FY2031 and pegging next year (FY2026) fiscal deficit to 4.4% of GDP were few other positive surprises in the budget.

Are you confident that the FMCG and consumption segments have bottomed out?

While FMCG and consumption sectors haven’t been major drivers of the recent bull run in the market, the recent budget announcements could provide a boost. The income tax cuts, particularly the relief for those with incomes up to Rs 12 lakh, are expected to increase citizens' spending capacity. This may help consumption-driven companies focus on volume growth while keeping product price hikes minimal.

From a consumption perspective, this tax relief looks certainly positive. Additionally, there are several measures that could have a direct impact on the sector. For example, the reduction in Basic Customs Duty (BCD) on frozen fish feed from 30% to 5%, along with the introduction of the Dhan Dhaniye Krishi Yojna, aims to support 100 districts with low productivity and financial access, benefiting around 17 million farmers.

The government’s focus on self-reliance is also evident through initiatives such as the six-year Aatmanirbhar plan for pulses, the National Mission for Edible Oil, and a five-year mission to boost cotton productivity. Furthermore, the increase in the Kisan Credit Card (KCC) limit from Rs 3 lakh to Rs 5 lakh and efforts to promote Aatmanirbhar in urea production is likely provide additional support to the agricultural sector. Together, these measures indicate a more favourable environment for both consumption and production in the near future.

Is it the right time to make significant changes to one’s portfolio, especially after the Budget?

Rebalancing your portfolio regularly looks crucial, Consulting with your financial advisor to assess whether any adjustments are necessary. If changes are needed, they may help to determine the appropriate modifications based on the risk profile.

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