Expect positive trend as benefits of rate cuts & consumption boost trickle down: Anand Radhakrishnan

Anand Radhakrishnan, MD, Sundaram Mutual Fund, says rate cuts are expected to boost both listed and unlisted companies by improving liquidity and credit availability. Consumption, which accounts for over 50% of the economy, is likely to rise due to tax relief, falling interest rates, and potential wage growth. Many legs of the economy seem to be reasonably aligned and at the margin, we would see both the benefits of interest rates and consumption trickle down. Investment is also projected to increase from both government and corporations.

What do you make of the current market setup? It is quite impressive to see how the markets have managed to climb the wall of worry. Whatever could go wrong has gone wrong in the last six-eight months, but markets are firm like rock, not only in India but globally also?
Anand Radhakrishnan: Yes, after a dip through January, February, March, we have seen a smart recovery in the market, not only in India, but across the world. Specific to India, we have seen financial conditions easing up relatively. We have seen cuts in interest rates, cuts in CRR, risk weights reducing in the banking system as well as NBFCs. We have also seen moderation of inflation and improvement in wages, especially on the rural side wage growth,

By and large, the incremental data has been positive, and this is also reflected in some of the high frequency numbers like GST collections, E-way bill, momentum among others. For the year ending FY25, we have also seen very good corporate numbers across the breadth of industries. There is a record number of companies that are declaring double-digit growth. All of it seems to have had a positive effect in pulling up the overall market.

Where do we go from here in terms of the next trigger because the earnings have not been great? While demand is there in terms of FIIs, SIPs, etc, etc, we are also seeing a lot of demand. If demand and supply is getting balanced, triggers are not there, and earnings are slowing down, what would take the markets higher from here?
Anand Radhakrishnan: No, aggregate demand is pretty robust. What is the best indicator of aggregate demand? There are many indicators. We tend to track many, for example, people say the index of industrial production is a good measure of manufactured goods, I personally think GST is a very good measure because it is on goods and services that are sold; the government is collecting tax. If you look at it, it has been trending in mid-teens in the growth. So, aggregate market demand seems to be pretty okay. There are pockets of slowdown and pockets of relative strength and therefore, from that perspective, we can say we are in a healthy situation.

Incrementally, what can change is that, one is the benefits of rate cuts will trickle down both into the listed corporates and unlisted corporates. The liquidity improvement should make credit availability easier and that currently, the credit growth is a bit tepid. It is less than 10% or so and, especially on the corporate loan growth. It can lead to some improvement and some kind of financial conditions becoming easier for companies and that should be positive.

The second area which can improve is on the consumption side. Post the tax relief and the fall in interest rates and possibly a good wage growth and an impending wage revision for government employees, we might see consumption getting a leg up both on the urban side, on the rural side. Consumption is more than 50% of the economy, which has been on and off and it has been blowing hot and cold. We can see a more decisive positive trend there as well and we will see a continued kind of a growth on the investment side, both from the government and corporations. Many legs of the economy seem to be reasonably aligned and at the margin, we would see both the benefits of interest rates and consumption trickle down.

The next big trigger or rather a date that everybody is watching out for is 9th July. Help us understand how you see the markets headed towards that because for today, there is still a lot of uncertainty and some reports suggesting that this deadline could be pushed back. But what sentiment are you getting for the markets given that some of the US markets are very near their all-time high levels and the Indian markets as well as the emerging markets, are doing very well today.
Anand Radhakrishnan: You are right in the sense that after the initial jitters on the tariffs, markets seem to have shrugged it off partly because of the rollback of the US government on some of these issues as well as the time period window getting extended. The US in itself is looking to moderate interest rates and the government wants the interest rates to ease up and the dialogue between the government and seem to be wearing towards if inflation moderates in US, there is a scope for rate cut and tariffs seem to be coming in between the inflation and the rate cuts per se.

In some sense, there is a pressure there to be moderate on the tariff side in order to pave way for rate cuts and then that should kind of give some tailwind for the economy to grow a little bit faster and growth is imperative for even markets like US, economies like US and we would see therefore at the margin the balance tilt in favour of moderation in the tariff efforts than what we have seen earlier, in which case market seems to be sensing it in some sense and in which case we seem to be finally positioned.