Daily Voice: Whitespace Alpha's Puneet Sharma sees strong possibility of tariff hike by telecom giants in 2025

The Indian rupee has been under considerable pressure, recently breaching 86 per USD and reaching a historic low of Rs 86.69. This decline is attributed to a resilient US economy, strong dollar demand, and weak capital inflows in India. We forecast the rupee to weaken further in the coming months. The Reserve Bank of India (RBI) seems to be adopting a more flexible stance, allowing the rupee to depreciate, possibly to support export competitiveness.

Donald Trump’s return to the White House could introduce additional uncertainty to the global economic landscape. His administration’s historical penchant for fiscal expansion and "America First" policies could strengthen the US dollar further, exerting downward pressure on the rupee. On the flip side, if his policies create instability in US markets, emerging economies like India might attract capital inflows, providing some respite to the rupee. However, this scenario remains uncertain and would depend on the broader global economic sentiment.

Domestically, the rupee’s trajectory will also hinge on trade balances, crude oil prices, and the RBI’s intervention strategy. While a weaker rupee could boost exports, it raises inflation risks and complicates debt servicing. Given the current trends and the potential impact of external shocks post-January 20, the rupee is unlikely to appreciate in the near term. Hoping for an upturn in this environment might be as optimistic as expecting calm seas in the middle of a storm.

The rupee’s depreciation story is like a slow-burning drama where external shocks and internal vulnerabilities collaborate to challenge economic stability. Betting on an appreciation might feel like rooting for a twist ending in a play where all signs point otherwise. It’s a long shot at best.

Is this a good time to increase exposure to export-oriented sectors?

A weaker rupee often acts as a boon for export-oriented sectors like IT and pharmaceuticals, as it makes Indian goods and services more competitive in the global market. With the rupee recently breaching 86 per USD, export-focused companies stand to gain in the short term. For example, IT majors, which derive over 60-70% of their revenue from foreign markets, could see margin improvements due to the favourable currency exchange.

However, this might be a short-term party and doesn’t guarantee sustained long-term growth. The global economic environment remains unpredictable, with recession fears in key markets like the US and Europe potentially dampening demand for exports. For instance, even if IT services benefit from a weaker rupee now, sluggish global IT spending—projected to grow by only 3% in 2025—could limit the sector's upside. Similarly, pharma exporters may face headwinds from pricing pressures in regulated markets.

Investors should remain cautious and avoid overexposure to export-driven sectors solely based on currency movements. While the short-term outlook appears promising due to rupee depreciation, structural global challenges and sector-specific risks could erode these benefits over time. Diversifying across domestic-oriented sectors alongside exports may provide a more balanced strategy.

Do you expect the Union Budget to lack a major fiscal stimulus? Will it be market-friendly?

We are expecting the upcoming Union Budget to provide a much-needed fiscal stimulus to reignite growth in an economy that is projected to expand at a slower pace of 6.1% in FY25. With inflation at 5.22%, close to the RBI’s upper tolerance limit, the challenge lies in delivering targeted measures that stimulate demand while ensuring price stability. The government’s previous focus on infrastructure and manufacturing has set the stage for a growth-oriented budget, and we anticipate a continuation, if not an enhancement, of this momentum.

The economy requires bold steps, and a stimulus package targeting sectors like infrastructure, rural development, and manufacturing could be a game-changer. For instance, the capital expenditure allocation in the last budget was a record Rs 10 lakh crore, marking a 33% increase from the previous year. A further increase, coupled with incentives for private investment, could act as a catalyst for job creation and boost consumer confidence. Additionally, tax reforms or direct benefits for middle-income groups could spur consumption, providing an immediate demand-side push.

If the budget delivers on these expectations, it could be a powerful signal to both investors and markets, showcasing the government’s commitment to fostering growth while managing fiscal discipline. However, the balancing act remains critical. Too much focus on stimulus could risk stoking inflation, while insufficient measures might not generate the desired economic impact. This is a pivotal moment—one where bold, well-calibrated moves could set the stage for robust, sustained growth.

Where would you consider investing during the recent market correction?

At Whitespace Alpha, our investment philosophy emphasizes long-term value creation over short-term market reactions. During market corrections, we see opportunities to reinforce this principle by focusing on robust, fundamentally sound strategies rather than being swayed by temporary volatility. Corrections are not a signal to panic but a chance to revisit our core convictions and invest in quality opportunities that align with our vision of sustained, consistent growth.

We avoid speculative approaches and instead anchor our investments in assets with proven resilience and the potential to deliver across market cycles. By thinking long term, we sidestep the noise of immediate market fluctuations and focus on what truly matters: the underlying strength of our portfolio components. Our approach ensures that each investment decision is backed by thorough research and a clear alignment with our overarching objectives.

Rather than chasing fleeting trends, we commit to strategies that prioritize capital preservation and incremental growth. This disciplined mindset allows us to use market corrections as an opportunity to build and refine our positions for the future. In doing so, we ensure that our portfolio remains agile yet grounded, aligning with our commitment to deliver value regardless of market conditions. For us, it’s always about the big picture, not the daily ticker.

Do you think the equity market will take a couple of quarters to regain the record high seen in September 2024?

The equity market's recovery to the record highs of September 2024 will hinge on several factors, particularly corporate earnings and macroeconomic stability. While the benchmark indices have seen a correction from their peak levels, recovery will depend on whether corporate earnings in Q3 show significant improvement. Current estimates suggest that earnings growth needs to accelerate by at least 10-12% year-on-year in key sectors to support a rebound in valuations. If these expectations fall short, the market is likely to remain range-bound in the short term.

Global cues, including inflation trends, interest rate movements, and geopolitical stability, will also play a critical role. For example, inflation in India has moderated to 5.22%, but any resurgence could delay rate cuts by the Reserve Bank of India (RBI), further dampening market sentiment. Additionally, if GDP growth remains around the projected 6.1% for FY25, the markets may take longer to regain their momentum.

In the absence of robust earnings and macroeconomic clarity, the equity market could consolidate at current levels, leading to sideways movement for the next two to three quarters. While optimism for a recovery remains, it will be driven by tangible performance rather than speculative sentiment. For investors, this is a time to prioritize resilience and quality in portfolios, ensuring they are prepared for either a delayed rebound or extended consolidation.

Is there a possibility of a tariff hike by telecom giants in 2025?

There is a strong possibility of a tariff hike by telecom giants in 2025, driven by the need to improve profitability and manage increasing operational costs. Analysts anticipate a 10-15% increase in tariffs during the year, which could push the Average Revenue Per User (ARPU) beyond Rs 300, up from the current industry average of around Rs 200-250. This is especially critical as telecom companies continue to invest heavily in 5G infrastructure and spectrum acquisitions, with capital expenditures reaching Rs 1.5-2 lakh crore over the past two years.

The tariff hike could also be influenced by the sector's ongoing consolidation, giving dominant players more pricing power. Top telecom companies have already hinted at the need for higher tariffs to sustain growth and ensure returns on their massive investments. Such hikes would not only improve their bottom lines but also address the industry's long-standing debt challenges, which exceed Rs 6 lakh crore collectively.

While the move may bolster the financial health of telecom companies, it could face resistance from price-sensitive consumers, potentially slowing subscriber growth. Nevertheless, with rising data consumption and growing demand for premium services, a well-implemented tariff revision is likely to be absorbed by the market. In essence, a tariff hike in 2025 appears both necessary and inevitable as telecom giants seek to balance growth ambitions with financial sustainability.

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