Expert view: Trump tariff risk is real; slowing GDP growth a key concern, says Krishnan V R of Marcellus
GDP growth moderated last year, and the current estimate is for growth to be around 6-6.5 per cent this year and next.
With core inflation trending around 3.5 per cent, I do not see much scope for aggregate revenues to grow at more than 12 per cent for most domestically facing businesses.
We remain cautious about mass consumption given India's inability to create jobs at scale and stretched household balance sheets.
However, an easing inflation backdrop coupled with additional supportive monetary and fiscal policy steps could trigger a near-term recovery in urban consumption.
Slowing GDP growth and lower inflation do not bode well for corporate earnings growth.
Q1FY26 also saw tariff announcements and the rise of geopolitical risks.
I think we need to wait for a material uptick in income growth for a broad-based consumption recovery, as I do not see any additional structural triggers apart from the tailwinds highlighted above.
The tariff risk is real, as the US is India's largest trading partner. We currently have a large trade surplus with the US in both merchandise goods and services.
It is clear that the US administration intends to use the threat of tariffs and associated uncertainty as a tool for trade negotiations.
Given that the US will demand meaningful concessions for Indian market access in case there is a trade agreement, it would be fair to expect that our trade surplus with them might shrink in the near term.
However, India's relative tariff levels and export competitiveness compared to other countries will determine the long-term impact of tariffs on its overall goods trade deficit.
Firstly, steady and growing domestic flows predominantly through mutual funds, despite a brief drawdown between Sept-2024 and Feb-2025, have been a stabilising factor for equity markets in the face of erratic FII flows.
Secondly, domestic mutual funds and retail investors have been net buyers of equity over the last few years, even as foreign investors and promoters have been reducing their stakes.
From an investing standpoint, this reallocation of household savings to financial assets offers opportunities to pick well-run companies in broader financial services space like insurance, wealth management, RTAs, depositories, AMCs, among others, which stand to benefit in the long term.
According to our global equities team, broad-based index exposure calls for caution at this juncture, and a more selective, bottom-up approach is warranted.
Many high-quality businesses are currently lagging—not because of fundamentals, but due to a lack of near-term earnings triggers.
On the other hand, companies benefiting from recent tailwinds may be pricing in overly optimistic assumptions. In such an environment, valuation discipline and thoughtful stock selection become critical.
For patient investors, this setup also creates a fertile hunting ground—several high-quality, under-the-radar businesses trading at attractive valuations can offer meaningful long-term upside.
While US stagflation concerns are valid, they have not been borne out in reality, at least not yet. US jobs data, indicated by non-farm payrolls, surprised positively in May and June.
However, the combination of a cheaper US dollar and higher long-term USD yields would suggest some nervousness about holding dollar assets.
If US recession risks do play out, then it will obviously have knock-on effects on EM (emerging market) economies, especially those where trade and exports are a meaningful portion of GDP.
For India, domestic consumption is more important, and hence, the first-order impact of the US slowdown on the Indian economy will be relatively less.
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Disclaimer: This story is for educational purposes only. The views and recommendations expressed are those of individual analysts or broking firms, not Mint. We advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and circumstances may vary.
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