According to Sanjay Kumar, Chief Investment Officer at PNB MetLife, the Reserve Bank of India (RBI) may consider cutting policy rates again in August, but the threshold for doing so is quite high. This is due to the current inflation data, along with the outlook for good monsoon rainfall and benign global commodity prices, which may lead to inflation undershooting the RBI’s projection of 3.7% for FY26. Kumar believes that the auto sector is gearing up for a robust second half in FY26, driven by a boost in disposable incomes across both rural and urban India.
Kumar expects the June quarter earnings (Q1FY26) to be significantly better than those in the March quarter, driven by a favorable base, strengthening domestic macro-economic outlook, supportive monetary policy stance, and benign inflation. The monsoon is progressing well, which should support the rural economy, while improvement in urban demand is expected to be driven by the positive effect of income tax benefits announced in the Union Budget.
The auto sector is expected to see a strong recovery in volumes during the second half of FY26, with double-digit growth possible. This is due to the boost in disposable incomes, particularly in rural areas where the above-average monsoon is likely to help farmers with better crop yields and lower irrigation costs. Urban consumers are also expected to loosen their purse strings, thanks to recent income tax cuts.
Kumar prefers betting on the discretionary space over the staples sector, considering the potential for stronger earnings performance. The consumption sector has been severely impacted in the last two years due to high inflation and slowing economic growth, but discretionary categories such as apparel, QSR, and footwear are expected to be bigger beneficiaries of the revival in consumption demand.
The ongoing decline in inflation has led to expectations of an interest rate cut in the RBI’s August policy meeting. However, the timing of these measures may depend on the RBI gaining confidence on the sustainability of the lower inflation trajectory. Kumar maintains a strong bullish view on hotels, travel, and quick commerce (Q-commerce) names from a medium-term perspective, driven by a confluence of transformative macro and microeconomic tailwinds.
Overall, Kumar believes that the Indian economy is poised for a strong recovery, driven by a combination of factors such as favorable monsoon, improving farm incomes, and a rise in disposable incomes. The equity markets are expected to be driven by a supportive monetary and fiscal policy stance, improving earnings growth trajectory, and sustained domestic flows. Stability in the global financial markets and a favorable outcome of the India-US trade negotiations would further aid the ongoing market buoyancy.