According to Rakesh Vyas of Quest Investment Advisors, an improvement in US-India relations and the potential withdrawal of 25% additional tariffs could trigger a relief rally in the Indian market from late 2025. Strong earnings are expected in the banking, housing finance, consumer durables, retail, and quick commerce sectors. However, the re-rating of equities is likely to remain limited.
Market rally: Rakesh Vyas, Chief of Quest Investment Advisors, believes that the recent improvement in US-India relations and the withdrawal of 25% additional tariffs on Indian goods could initiate a relief rally in the market from late 2025. Strong earnings are particularly expected in banking and housing finance companies. Improved corporate earnings from Q3 FY2026 and government policy measures will support investors.
Opportunities in Banking and NBFC Sectors
Rakesh Vyas believes that investors are likely to get good returns from two large private sector banks. According to him, these banks are supported by b asset quality and liability franchises. In the NBFC sector, he prefers companies with b growth prospects. He stated that these sectors would be the most beneficial during a period of falling interest rates.
Expectations of Improvement from Q3 FY2026
Rakesh Vyas stated that corporate earnings have been weak over the past 5-6 quarters. However, an improvement is expected from Q3 FY2026. He mentioned that policy reforms undertaken by the central government and RBI over the last 8-9 months would support companies. These reforms could lead to improved profitability in the banking, housing finance, and other corporate sectors.
Government's Focus on Boosting Consumption
Vyas noted that government spending in India saw a continuous increase from FY2020 to FY2024. Government allocation was ₹3.4 lakh crore in FY2020, rising to ₹9.5 lakh crore in FY2024. However, since the beginning of FY2025, the government's focus has shifted towards boosting consumption. This effort has been further strengthened by the RBI's supportive policies.
Prospects for Growth in the Private Sector
As demand increases, capacity utilization in the manufacturing sector will improve. This is expected to lead to an increase in private sector CapEx in the coming years. According to Rakesh Vyas, this step will give a positive signal to investors and enhance market liquidity.
Boom in Consumer Durables and Retail Sector
Vyas stated that an increase in disposable income and GST reductions would boost purchasing in discretionary consumption sectors. Especially during the festive season, a surge is expected in consumer durables, chemical, retail, and quick commerce stocks. Additionally, demand growth could also lead to an uptick in shares related to MSMEs.
Outlook on Indian Equity Re-rating
Rakesh Vyas mentioned that policy reforms implemented by the government and RBI over the past 8-9 months are likely to lead to improved corporate earnings from Q3 FY2026. However, he also cautioned against expecting very high returns. Market performance will depend on earnings growth, and the likelihood of a re-rating for Indian equities in the near future is limited.
Possibility of Rate Cuts
The RBI has cut rates multiple times over the past 8-9 months. Recent GST reductions are expected to lower retail inflation by approximately 30 basis points. According to Rakesh Vyas, the RBI will assess the impact of previous cuts before taking any new steps. Consequently, there remains a possibility of further rate cuts in the latter part of calendar year 2025.
