Daily Voice: US economy may see mild slowdown but deep recession appears unlikely, says LIC MF's Nikhil Rungta

India's GDP growth of 6.5-7% in FY26 maybe achievable but that will depend on several factors. The recent drop in inflation to 3.61% in February 2025 provides a favourable environment, while the RBI's 25 bps rate cut in February and an expected further cut in April may help stimulate growth. However, global trade uncertainties, weak exports, and slow private capex remain concerns. Government-led infrastructure spending and resilient domestic consumption may provide support, but external risks could make achieving this target challenging.

Do you see ample scope for rate cuts by RBI in India, regardless of what the Federal Reserve does for the rest of 2025?

Yes, the RBI (Reserve Bank of India) has room for further rate cuts, independent of the Federal Reserve's actions. With inflation cooling, the central bank may likely cut rates by another 25 bps in April 2025, with further reductions expected in current year. Unlike the Fed, which remains cautious due to global factors, the RBI is focused on sustaining India’s growth momentum. While external factors like foreign institutional investors (FII) flows and global liquidity conditions matter, India’s monetary policy decisions may be guided primarily by domestic inflation trends and economic activity.

Do you think the recession risk for the US economy might be greater than previously feared?

The latest US inflation data, which showed consumer prices rising by 2.8% in February 2025, suggests that inflation is cooling faster-than-expected, reducing the immediate risk of aggressive Fed action. However, concerns remain over slowing industrial activity, tighter credit conditions, and weaker corporate earnings. While a deep recession appears unlikely, a mild slowdown or stagflation scenario is possible. The impact of new tariffs and a potential dip in consumer spending may be key factors in determining the actual risk level in the coming months.

What are the challenges for the equity markets?

Equity markets are struggling to rebound due to valuation concerns, global risks, and weak earnings momentum. Despite the correction, some mid and small caps remain expensive, leading to cautious investor sentiment. FIIs have been persistent sellers, and corporate earnings growth has not provided a strong catalyst for recovery. Investors are waiting for additional rate cuts, a revival in private capex, or significant earnings beat before increasing exposure. Until a clear trigger emerges, markets may remain volatile.

Given the current equity market landscape, which sectors are well-positioned to deliver structural growth, making them compelling investment opportunities?

Banking may remain attractive due to strong credit demand and improving asset quality. Infrastructure and capital goods may benefit from government spending and private capex revival. Consumption sectors like FMCG (fast-moving consumer goods) and auto are supported by easing inflation and improving rural demand.

IT sector may remain a long-term structural play, driven by cloud and AI adoption. Renewable energy sector may be an another sector due to policy support and rising investments in sustainability. While near-term volatility may persist, these sectors are well-positioned for long-term growth.

Do you expect a more significant correction in the IT sector, even after the sharp fall in the last three months from its all-time high?

The IT sector has already seen a sharp correction due to global slowdown concerns and weak deal flow. While valuations have moderated, demand trends in the US and Europe remain crucial. The recent softening of US inflation may provide relief, but corporate tech spending is still uncertain. IT firms with strong order books may remain resilient. A deeper correction seems unlikely unless global economic conditions deteriorate further. Instead, any additional weakness could present a long-term buying opportunity.

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