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Below the Quote on Market 26th September 2025 by Mr. Sandeep Neema, Director, PL Asset Management

“The global backdrop is turning more challenging as the US economy edges toward stagflation, with growth momentum slowing, unemployment inching higher, and inflation trending upward from its trough. While the Federal Reserve has already delivered a rate cut in September 2025, it remains constrained from pursuing an aggressive easing path in the near term given persistent price pressures. The next meaningful wave of monetary support is expected only in 2026. At the same time, tariff headwinds have intensified — the imposition of 50% duties on Indian exports worth approximately $86bn (2.2% of GDP) poses near-term risks to growth, particularly for engineering, pharma, chemicals, textiles, electronics, and gems & jewellery. At the worst, these measures are likely to shave 20–30 basis points from India’s GDP in FY26, underscoring the need for supportive domestic policy to sustain momentum.

India’s macro environment, however, remains resilient and well-positioned to absorb global shocks. GDP growth is forecast at 6.5–6.6% in FY26, supported by a confluence of structural reforms and demand catalysts:

* Rs.1 trillion in income-tax relief to spur urban consumption,

* RBI rate cuts of 50 bps to ease credit conditions, and

* GST 2.0 rationalization that could unlock Rs.1.4 trillion of disposable income.

Additional triggers such as the 8th Pay Commission wage hikes, expected to lift consumption from FY27, and manufacturing reforms through lower infrastructure costs and expanded PLI schemes reinforce the growth story.

Inflation, at 1.6% in July 2025, is likely to trend higher toward the RBI’s 3.7% year-end target, driven by food and energy, while fiscal deficit pressures could widen modestly due to GST and tariff cushions.

Against this backdrop, equities are well-placed: Nifty earnings grew 9.5% in Q1 FY26, earnings downgrades appear to have bottomed, we expect the upgrade cycle to begin in 2H and into FY27. With valuations reset below long-term averages, domestic flows (~Rs.2,070bn in mutual fund cash, strong SIPs) providing stability, and EM funds at their most underweight position in India since 1955, conditions are ripe for a re-rating. We expect markets to be in a bullish cycle over the next 12 months.

Sector Outlook

Sector positioning is tilted toward Metals, Banks, and Industrials, which are best placed to capture the next leg of India’s growth cycle.

Metals stand to benefit from government infrastructure spending, resilient domestic demand, and global supply tightness, with valuations still attractive given the sector’s continued underweight status in domestic portfolios.

Banks, despite muted loan growth in H1, are poised for a meaningful acceleration as rate cuts, tax relief, and rising consumption unlock credit demand, while margin pressures ease from H2 FY26.

Industrials and Capital Goods are supported by strong order inflows, private capex revival, and PLI-led reforms that create multi-year earnings visibility.

By contrast, IT and consumption are best approached with a neutral stance: IT faces near-term global headwinds, but longer-term AI and digital adoption remain structural positives; consumption is recovering, particularly in urban markets, though rural demand lags and valuations in some discretionary pockets appear stretched. The clear underweights remain export-oriented sectors—engineering, pharma, chemicals, textiles, and electronics—where US tariffs have created direct earnings risks, and policy support will take time to offset. Overall, portfolio strategy should emphasize a pro-cyclical tilt, anchored by Overweight positions in Metals, Banks, and Industrials, while maintaining select exposure in IT and consumption and avoiding tariff-exposed or overvalued discretionary plays”

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