Shibani Sircar Kurian, a representative from Kotak Mahindra Asset Management, has shared an optimistic outlook for the Indian market, projecting low double-digit earnings growth for the fiscal year 2026. This growth is expected to be driven by improving domestic demand trends and supported by various policy measures aimed at boosting consumption.

Policy Measures to Boost Domestic Consumption

Several key policy initiatives are expected to play a crucial role in stimulating domestic consumption:

• Tax cuts for mass income segments
• Anticipated rate cuts by the Reserve Bank of India (RBI)
• GST rationalization

These measures are designed to increase disposable income and encourage spending across various sectors of the economy.

Rural Economy Shows Promise

The rural economy is showing signs of revival, contributing to the positive outlook:

• Favorable monsoons are expected to boost agricultural output
• Rising rural demand is observed
• Real rural wages are moving up
• Inflation remains under control, supporting purchasing power

Sectors Poised for Growth

Automobile Sector

The automobile industry is well-positioned to benefit from the improving economic conditions:

• Two-wheelers expected to see increased demand
• Entry-level four-wheelers likely to experience growth
• Policy supports and improving rural demand to drive sales

Fertilizer Sector

The fertilizer sector is also anticipated to perform well:

• Good monsoons to boost agricultural activities
• Recent policy announcements favorable for the sector
• China's lifting of export curbs on fertilizers to potentially benefit Indian companies

China's Policy Shift

China's decision to lift export curbs on several key products is seen as a significant development:

• Fertilizers export restrictions removed
• Rare earth metals export curbs lifted
• Tunnel boring machines export restrictions eased

This policy shift could have positive implications for various Indian industries that rely on these imports.

Market Valuation and Focus

Indian markets are showing promise, with a particular focus on domestic-facing sectors. However, investors should note that:

• Largecap valuations are currently trading at a slight premium to long-term averages

As the Indian economy continues to evolve, sectors benefiting from domestic consumption and policy support are likely to be at the forefront of growth in the coming fiscal year.

Adrian Mowat, a prominent Emerging Markets Equity Strategist, has shared insights on the Indian market's resilience and potential challenges ahead. His analysis points to a complex interplay of global trade policies, currency fluctuations, and monetary policy that could shape India's economic landscape in the near term.

Market Resilience Amid Tariff Concerns

Mowat expresses confidence in the Indian markets' ability to withstand potential trade pressures. He believes that even in a worst-case scenario of a 25% tariff, the market could quickly adjust without severely impacting the earnings of most benchmark constituents. This assessment suggests a degree of robustness in the Indian corporate sector, potentially reassuring investors about the market's ability to absorb external shocks.

Currency and Energy Challenges

However, Mowat also highlights significant concerns that could affect India's economic outlook:

1. Rupee Weakness: A depreciating rupee could have far-reaching implications for the Indian economy.
2. U.S. Penalties on Russian Oil Imports: Potential U.S. actions against India's imports of Russian oil could drive up energy costs.

These factors combined could create a challenging environment for India's central bank, the Reserve Bank of India (RBI).

Impact on Monetary Policy

The confluence of a weaker rupee and higher imported inflation could significantly constrain the RBI's monetary policy options. Mowat points out that these conditions may limit the central bank's ability to stimulate the economy through interest rate cuts. This reduced flexibility in monetary policy could have implications for economic growth and market performance.

Investment Outlook

Given these factors, Mowat suggests that the risk-reward scenario for Indian equities may become less attractive in the short term. He anticipates potential negative impacts on foreign institutional investor (FII) inflows, as global investors might consider reducing their allocations to Indian markets.

Beyond Immediate Impacts

Importantly, Mowat emphasizes that when it comes to trade policies, the second-order effects often carry more weight than the immediately quantifiable impacts. This perspective underscores the need for investors and policymakers to look beyond short-term market reactions and consider the broader, long-term implications of global economic shifts.

As the situation evolves, market participants will likely keep a close eye on currency movements, energy prices, and potential policy responses from the Indian government and the RBI. The interplay of these factors will be crucial in determining the trajectory of Indian markets and their attractiveness to both domestic and international investors in the coming months.