Excerpts:
India GDP vs Market Reaction
Q. India’s GDP came in at 8.2%, yet markets barely reacted. What explains this muted response?
Abhishek Banerjee: To understand the market’s response, we need to look at expectations. The RBI’s Survey of Professional Forecasters, which includes banks like Citi, JPMorgan, and Indian brokerages, projected Q2 GDP between 6.4% and 8.4%. The actual number, 8.2%, was near the upper end of this range.
However, high-frequency data like GST collections, vehicle sales (SIAM), and trade numbers had already indicated strong momentum. Much of this optimism was already priced in.
Markets opened mildly positive but then slipped, partly because Asian markets, especially Japan, were down around 2%. Indian markets outperforming on a relative basis is still a positive.
I personally expected a stronger reaction, even a move to all-time highs. But global cues, concerns around the upcoming MPC meeting, trade deal uncertainty, and geopolitical issues kept markets cautious.
US-India Trade Deal, Venezuela & Inflation
Q. There’s limited progress on the US-India trade deal and tensions are rising around Venezuela, a key oil exporter. How do these factors impact inflation and the MPC rate cut expectations?
Abhishek: Two key bills, the India Pesticides Act (public) and the India Seeds Act (in progress), could influence agricultural negotiations tied to the trade deal. The deal itself is clearly delayed.
Government support schemes exist, but much of India’s export ecosystem (e.g., textiles) is unorganised, making the impact on listed companies harder to measure.
China exports $180 billion of garments to the US; Indian exporters have better design capabilities and brand positioning, but they still feel the headwinds from trade uncertainty.
On Venezuela: it’s a major oil supplier and generally avoids geopolitical disputes. But rising tensions around maritime access and US pressure could sharply impact crude prices. With crude near $60, any escalation could push inflation up quickly.
Despite this, India’s inflation is currently well below the RBI’s 4% target. That gives RBI room to cut. I expect a rate cut this MPC, possibly 50 bps, not just 25 bps. No cut would surprise the market — and likely hurt smaller caps.
Should Indian Investors Look at Global Equities?
Q. Foreign equities are back in focus. Is this a good time for Indian investors to look at US or global markets?
Abhishek: The US market still offers themes that India doesn’t. Valuations are stretched but not in bubble territory, and tech capex remains strong.
But taxation is a major hurdle.
- Indian investors investing directly in US equities face tax on peak portfolio value at the maximum marginal rate.
- US investors accessing Indian markets via mutual funds or AIFs face PFIC rules, taxation on notional gains.
So the opportunity exists, but tax structures make direct participation inefficient. For most investors, accessing foreign equities via Indian mutual funds or structured vehicles may be more practical.
Asian Markets Outperforming India
Q. Korean, Chinese, and Japanese markets have outperformed India this year. Could we see mean reversion if FPI/FPI inflows return?
Abhishek: Yes, FPI and FDI flows are typically mean reverting. India has seen outflows recently, partly due to tighter compliance norms and beneficial owner transparency.
But with the rupee at all-time lows, India becomes attractive again. If FPIs buy at 90 and markets gain 10%, the currency appreciation from 90 → 84 boosts returns further. That’s called currency return.
Global allocation cycles begin around Jan–Feb, so inflows could start late December or early next year. When they return, they usually come in large waves, which can strongly support Indian markets.
Public Confusion Around a Weak Rupee
Q. There’s negativity around the rupee hitting record lows. For those who don’t follow currency dynamics, how should they interpret this?
Abhishek: The term “weakening rupee” sounds negative, but economically, a weaker currency benefits exporting nations.
For example, if Infosys earns $500 million, a weaker rupee means more rupees earned, while costs stay denominated in rupees, boosting profitability.
Countries like the US and Japan would love a weaker currency because it boosts their export competitiveness.
A weaker rupee benefits:
- IT services
- Pharma
- Manufacturing
- Defence exports
- Generic drug exporters
It’s NOT good for:
- Travellers
- Imports
- Crude oil (this is the biggest problem)
Higher oil costs feed inflation — which then forces RBI to tighten policy. So the narrative should be:
A weaker rupee is good unless inflation rises sharply.
Sectors to Watch for the Rest of the Year
Q. Which sectors look strongest for the remainder of the year?
Abhishek: The February 2025 budget earmarked ₹11.11 lakh crore for government capex, and much of it must be deployed in the next three months, making infrastructure a strong theme.
Additionally, for banks, the reserve ratio for infrastructure lending was cut from 4% to 1%, allowing 3x more lending to infra projects.
So I like:
- Infrastructure (ETFs or large names)
- Pharmaceuticals (operating leverage + export tailwinds)
- IT services (weaker rupee effect)
- Local financials — housing finance companies & NBFCs
Disclaimer: Recommendations, suggestions, views and opinions given by the experts/brokerages do not represent the views of Economic Times.
