Fiscal and monetary easing have paved the way for market gains ahead of the festive season: Hiren Ved

As the holidays approach, market sentiment appears cautiously optimistic. Despite benchmark indices remaining within range, there is a growing sense that the economy could quickly regain its rhythm.

In an exclusive conversation with ET NowHiren Ved, director and CIO at Alchemy Capital, acknowledged that the past year has been challenging for the markets. “The markets peaked in September 2024 and from then on we have seen several challenges. So we have had quite a long consolidation phase, and that is perhaps right, because after very strong earnings growth between 2020 and 2024, we finally had very tepid earnings growth last year, just like in the first half of this year,” he said.

Ved pointed out that while Nifty’s earnings growth is hovering around 8-9%, the real momentum lies outside the index. ‘Basically all the growth is in the next 450 stocks, outside Nifty’ he added. Yet he thinks the tide is turning. “We are probably at a point where we should see a recovery in earnings in the second half of the year, led by consumption growth.”

According to Ved, the aggressive easing by the Reserve Bank of India has been unprecedented. “I have never seen the kind of easing that the RBI has done, not just in terms of interest rates and liquidity, but more importantly in terms of monetary policy easing. Provisions have been tightened, risk weights have been increased and they are all being phased out now,” he explained.

Fiscal and monetary tailwinds

Ved underlined that both fiscal and monetary policies are now aligned to boost growth. “Last year we had a very tight fiscal and monetary policy. Finally, we let go and we eased fiscal policy by introducing tax cuts. First we cut the income tax in February and now the VAT cut, and then we have seen significant monetary easing.” he said.

According to him, this synchronized relaxation will revive consumption. “Consumption growth has really been slowing down. I hope that the initial feedback is at least quite positive when you look at car sales and durable goods. I think that momentum will hopefully continue this quarter.” By noted.

Cars, housing and gold lead the way

While the auto sector appears to be one of the early beneficiaries, Ved expects the revival to spread more widely. “Obviously, automobiles – cars, two-wheelers – are a big sector. We have had very good monsoons this year. So we should see strong growth in tractors, good growth in SUVs. Probably, rural consumption will come back,” he says. he said. Lower interest rates and better liquidity can also increase housing demand. Ved pointed to an often overlooked factor driving consumer sentiment: the rise in gold prices. “There is probably a huge wealth effect and this wealth effect is much more important because culturally Indians own gold and generational wealth and that wealth has made a huge leap.” he said, noting that gold loan financiers are already seeing the benefits.

He believes these combined factors can drive a broad-based recovery. “I hope that consumption improves in a very broad way… you’ll probably buy a more expensive device, go on a better vacation, and some of that will be saved, which will hopefully reflect on the stock markets,” he added.

Defense and space: the long game

On the investment front, Ved reaffirmed his optimistic stance on the defense sector despite recent corrections. “I still feel like it’s a long-term issue. Unfortunately, we have a very hostile neighborhood. We saw what happened with Operation Sindoor and I honestly don’t think we have a choice there,” he said.

He emphasized that government policy is not only about national security, but also about boosting domestic production and job creation. “Whether it is defense and naval vessels or even commercial shipbuilding, the government has given a big step forward.” he observed.

Ved believes that defense, aerospace and shipbuilding together represent a transformative opportunity. “Many companies are still very young and small and could grow 4x to 5x in size in the coming years,” he said confidently.

Outlook

As India enters the festive season, Ved’s message is clear: the foundation for growth is being laid through synchronized fiscal and monetary easing, rising consumption and strong longer-term manufacturing themes. It seems that the cheer of Diwali is not just emotional but could soon be reflected in the markets.