Daily Voice: These 4 key triggers could drive a significant move in Indian equities in coming months, says Right Horizons' Anil Rego

The United States appears more inclined to maintain the baseline 10 percent tariff rather than pursue a broader reciprocal tariff policy, as the former offers a more predictable and administratively manageable approach. While reciprocal tariffs align with a more assertive trade stance, they present legal and diplomatic complexities, especially following recent court rulings.

A continuation of the baseline tariff may allow policymakers to balance domestic economic interests with international trade commitments, while leaving room for future adjustments based on evolving strategic priorities and global trade dynamics.

Do you expect the US Federal Reserve to go for more than two rate cuts during the remainder of 2025, assuming incoming economic data weakens further?

If incoming economic data weakens further, particularly in terms of slowing job growth, easing inflation, and declining consumer spending, the US Federal Reserve could consider more than two rate cuts in the remainder of 2025. However, the Fed is likely to proceed cautiously, weighing financial stability and inflation expectations. While a more aggressive easing cycle is possible under deteriorating conditions, the Fed has emphasized a data-dependent and gradual approach, aiming to avoid reigniting inflationary pressures.

Do you think the RBI will go for more than a 25 bps cut in the repo rate in the June policy meeting? What are your other expectations from the policy?

Based on the latest developments, it is likely that the RBI will deliver a 25 basis point cut in the repo rate at the June 6 policy meeting, marking the third consecutive reduction this year. With CPI inflation running below the 4 percent medium-term target for three months and inflation projected to remain benign—possibly revised down by 20–30 bps - the RBI has room to continue its accommodative stance, with a stronger tilt toward supporting growth.

While a larger cut cannot be ruled out if growth data surprises to the downside, the RBI is expected to balance rate easing with cautious liquidity management, especially amid monsoon uncertainties and global trade risks. Additionally, more liquidity injections are anticipated to ensure effective transmission, alongside a dovish policy tone. Growth projections may remain unchanged for now unless Q1 GDP data reveals sharper weakness.

Are you buying PSUs at the moment?

At the moment, a broad-based approach to PSUs may not be warranted given the sharp rally in the segment over the past year. However, selective exposure to quality PSU names trading at reasonable valuations could still offer long-term value. Sectors like defence, capital goods, and select financials continue to attract interest, especially where earnings visibility is strong and government reforms are supportive. A disciplined, bottom-up approach focused on fundamentals remains key when evaluating opportunities in this segment.

Is the defence sector in the middle of a multi-year bull run?

The defence sector in India appears to be in the stages of a multi-year bull run, supported by strong structural drivers. Government policies aimed at indigenisation, rising defence budgets, and increasing export orders are providing long-term tailwinds. Key public and private players are seeing robust order inflows, improved execution, and expanding margins.

However, given the sharp re-rating in valuations, especially in some PSU defence stocks, near-term volatility cannot be ruled out. That said, the long-term investment case remains intact, provided investors stay selective and focus on companies with strong balance sheets, execution capabilities, and order visibility.

What are the next triggers that could lead the market to make a significant move in the coming months?

Several key triggers could drive a significant move in Indian markets in the coming months:

RBI Policy and Rate Cuts: A more dovish RBI, especially with multiple rate cuts or aggressive liquidity support, could boost sentiment across rate-sensitive sectors.

Union Budget 2025–26: Fiscal policy direction, especially capex priorities, fiscal deficit targets, and potential tax reforms, will be closely watched by markets.

Corporate Earnings: Sustained earnings momentum, particularly in domestic sectors like banking, autos, and capital goods, could justify current valuations.

Global Cues: Fed rate cuts, crude oil price trends, and global risk appetite will influence FPI flows and sector rotation.

Each of these factors could play a pivotal role in determining the market’s direction in the second half of 2025.

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