LIC MF’s Nikhil Rungta
Impact of Tariffs and Consumer Spending Key to US Economic Outlook
The US economy is expected to witness a mild slowdown in the coming months, but the likelihood of a deep recession remains low, according to Nikhil Rungta, Chief Investment Officer at LIC Mutual Fund.
Rungta highlighted that factors such as new tariffs and a potential decline in consumer spending could influence the actual risk level for the US economic outlook. While inflation is cooling, concerns over slowing industrial activity, tight credit conditions, and weak corporate earnings persist.
Highlights from Rungta’s Economic Outlook:
✔ US economy may experience a mild slowdown or stagflation, but a deep recession appears unlikely
✔ New tariffs and weaker consumer spending could impact growth trajectory
✔ Cooling inflation in the US reduces the risk of aggressive Federal Reserve rate hikes
✔ India’s GDP growth target of 6.5-7% in FY26 is achievable but faces external challenges
✔ RBI expected to cut rates further in 2025, independent of Federal Reserve actions
✔ Banking, infrastructure, FMCG, and renewable energy sectors present compelling investment opportunities
India’s Economic Growth Outlook for FY26: Is 6.5-7% Achievable?
India’s GDP growth of 6.5-7% in FY26 is within reach, but it will depend on several macroeconomic and global factors, according to Rungta. He pointed out that India’s inflation dropped to 3.61% in February 2025, creating a favorable environment for growth. Additionally, the RBI’s 25 basis points (bps) rate cut in February, along with another expected cut in April, may provide further economic stimulus.
However, several risks remain:
🔹 Global trade uncertainties could weaken demand for Indian exports
🔹 Slow private capital expenditure (capex) remains a concern for sustainable growth
🔹 Government-led infrastructure spending and resilient domestic consumption are expected to support economic momentum
RBI’s Monetary Policy: More Rate Cuts Expected
The Reserve Bank of India (RBI) has room for additional rate cuts in 2025, irrespective of what the US Federal Reserve does. With inflation under control, the RBI is expected to reduce rates by another 25 bps in April 2025, with further cuts likely during the year.
Unlike the Fed, which is more cautious due to global economic uncertainties, the RBI’s policy decisions are expected to be driven by domestic inflation trends and economic activity. Factors such as foreign institutional investor (FII) flows and global liquidity conditions may influence market sentiment, but India’s monetary policy will likely focus on sustaining growth momentum.
Recession Risk in the US: A Greater Concern?
Recent US inflation data showed consumer prices rising by 2.8% in February 2025, suggesting that inflation is cooling faster than expected. This development reduces the immediate risk of aggressive rate hikes by the Federal Reserve.
However, challenges remain for the US economy, including:
🔸 Slowing industrial activity and weaker corporate earnings
🔸 Tighter credit conditions impacting businesses and consumers
🔸 Trade war concerns, particularly due to new tariffs on key trading partners
While a deep recession seems unlikely, a mild economic slowdown or even a stagflation scenario remains a possibility.
Challenges for Equity Markets in 2025
Equity markets are struggling due to a combination of valuation concerns, global risks, and weak earnings momentum. Some of the biggest challenges include:
✔ Persistent FII selling pressure, leading to volatility
✔ High valuations in mid and small-cap stocks, making investors cautious
✔ Sluggish corporate earnings growth, failing to provide a strong market catalyst
✔ Lack of private capex revival, limiting long-term growth prospects
Many investors are waiting for additional rate cuts, an improvement in corporate earnings, or policy-driven growth triggers before increasing their exposure to equities. Until then, markets are expected to remain volatile.
Sectors with Strong Growth Potential in 2025
Despite market volatility, some sectors remain well-positioned for structural growth and long-term investment opportunities.
🔹 Banking Sector: Expected to perform well due to strong credit demand and improving asset quality.
🔹 Infrastructure & Capital Goods: Likely to benefit from government-led infrastructure spending and a revival in private capex.
🔹 FMCG & Auto: Supported by easing inflation and rising rural demand, boosting consumption growth.
🔹 IT Sector: While facing near-term challenges, long-term demand remains strong, driven by cloud computing and AI adoption.
🔹 Renewable Energy: Policy support and rising investments in sustainability make this sector a long-term structural play.
IT Sector Correction?
The IT sector has already undergone a significant correction in the past three months due to global economic slowdown concerns and weak deal flow.
While valuations have moderated, the future trajectory of IT stocks depends on:
✔ Tech demand trends in the US and Europe
✔ Corporate IT spending outlook
✔ Macroeconomic stability and interest rate movements
Although another sharp correction seems unlikely, further weakness could present attractive long-term buying opportunities.
