Steady retail inflows to help DIIs deploy at attractive valuations

Uncertainty sparked by the US's crushing tariffs on Indian imports could abate by the second half of the fiscal year, which will see a rise in government capex, festival-led consumption, an improvement in rural demand owing to a favourable monsoon, and a broad-based pick-up in credit growth, said K. Sivakumar, chief investment officer, ICICI Prudential Pension Funds Management Co Ltd.

- Ram Sahgal

With the RBI frontloading interest rate cuts, he sees room for one more cut by the year end and expects the spread between the 10- and 40-year government securities to shrink in the medium term. Growing interest of private sector participants in the National Pension System will enable fund managers like him to deploy funds at attractive valuations, he said.

Edited excerpts:

What impact will the US's crushing tariffs have on India's markets in the short- to medium-term? Can domestic institutional investors (DIIs) keep buying if there is a structural shift in trade dynamics?

The high tariffs are expected to have an impact on market sentiment, especially in export-oriented sectors such as electronics, textiles and pharma. We'll have to wait and watch how this plays out. Nevertheless, over the longer term, the markets will be more influenced by our domestic growth and consumption pick-up. Steady retail inflows will help DIIs to continue to deploy as and when valuations are attractive.

The RBI held rates steady and raised its inflation forecast for the first quarter of the next fiscal year.

How will the markets react to these observations on inflation and the pause in light of global uncertainty?

What do you estimate will be the terminal repo rate this year?

We believe the RBI is in a 'wait & watch' mode as the transmission of the earlier 100 bps of cuts is still ongoing. The lower rates are expected to impact the economy from the second half of the fiscal year.

Having said that, we expect the lower inflation print over the coming months will give the monetary policy committee room for one more 25 bps cut before the end of the year.