The consumption cycle is returning after years of an investment-based strategy
Sivaram said the government’s heavy focus on capital expenditure in recent years has come at the expense of consumption, which was “no one’s issue” until recently.
But that has now changed and VAT rate cuts, tax cuts in the fiscal year budget, lower inflation and slower implementation of investment plans are combining to shift the focus back to consumer demand. “These measures will take six to 12 months to take effect, and we expect the full impact in 2026,” he said.
RBI is likely to cut rates twice; Inflation figures ‘mathematically incorrect’
According to Sivaram, India’s nominal GDP remains stuck in the single digits due to near-zero WPI inflation, depressed profits and budget figures.
He believes:
- RBI’s inflation projections are overestimated by 100 basis points,
- CPI excluding gold is negative,
- India needs inflation of 4 to 5% for healthy profit growth.
He expects two interest rate cuts of 25 basis points each, effective immediately. Previous tightenings have been attributed to poor data assessment.
Next year, earnings growth could reach 15%
If inflation normalizes and interest rates are cut soon, Sivaram expects earnings growth of at least 15% next year, with the first signs likely to be visible in the fourth quarter. He warns that global macro risks remain the biggest unknown.
Nominal GDP figures are misleading – and dangerous
Sivaram emphasized that the current real GDP print of 7.5% is too high due to statistical quirks. “In the real economy it doesn’t feel like 7.5%,” he said, noting that low nominal GDP hurts:
- Government budget deficit targets
- Pricing power of companies
- The momentum of market gains
“It’s a bigger problem than people realize,” he said.
The government has done enough: now let the policy have its effect
He believes that no additional stimulus is needed: “The switch from investments to consumption was essential… Now the measures just need time.”
Where to invest: Domestic themes will lead
Sivaram recommends shifting portfolios towards inward-looking growth stories:
- Banks (interest rate cycle ends, credit growth stable)
- NBFCs (Lower Financing Costs)
- Discretionary consumption
- Pharmaceutical products and selected raw materials
- Gold, which he expects to deliver annual returns of more than 10% as central banks diversify against the dollar
Mid and small caps: some hype, some pain
He said the correction in smaller stocks was overdue as many traded at high premiums despite weak earnings. “Where gains are strong, they will come back. Where the hype drove valuations, the corrections will be deeper.”
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