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India’s historic collapse in retail inflation has strengthened the case for monetary easing, and the Reserve Bank of India now has “a lot of room” to cut
interest rates, according to Manishi Raychaudhuri, founder of Emmer Capital. Speaking to ET Now, he said the central bank could reduce the policy rate by 25–50 basis points, given the backdrop of sharply lower headline inflation and stable macro fundamentals. Raychaudhuri opened the conversation by pointing to an extraordinary data point: CPI inflation at 0.25 per cent, a level he described as “almost unprecedented in India’s history.” With real interest rates now at their highest in years, he argued that conditions are firmly aligned for a rate cut in the near term.
Macro stability strong, but micro indicators lagging
Despite the favourable inflation trajectory and contained current account deficit, Raychaudhuri said India is experiencing what he called “good macro but pedestrian micro.” Inflation, fiscal conditions and external balances are supportive, but the corporate earnings cycle is yet to show broad-based improvement.
“Earnings estimates have been declining for nearly 15 months and have only just stabilised,” he said.
Much of this stability, comes from base metals and oil marketing companies rather than the broader corporate universe, he added.
The market expert also noted that analysts and foreign investors are waiting for earnings upgrades before turning decisively bullish on Indian equities.
Nominal GDP weakness holding back corporate revenues
Even though real GDP growth remains strong, 7.8 per cent in the June quarter and 8.2 per cent previously, Raychaudhuri flagged a more important metric: weak nominal GDP growth at 8-9 per cent.
“Corporate revenues and profits are driven by nominal GDP. Without inflation picking up to at least 2–4 per cent, we won’t return to earlier levels of 11–12 per cent nominal GDP growth,” he said. This is the missing link in the earnings cycle, according to him.
He has expected a clearer earnings recovery only after December-quarter results, with the January-March 2026 period likely to show the first signs of a broad-based upgrade.
Auto sector performing well but ‘priced to perfection’
Raychaudhuri acknowledged strong festive-season demand, especially for autos and consumer discretionary products. However, he said investors need to remain selective. According to him, auto sector have outperformed over the past few months, but valuations are stretched.
“What looks expensive today could look reasonable tomorrow if earnings estimates improve,” he added.
Why financials have not re-rated despite strong numbers
Raychaudhuri remains positive on large-cap banks but said two concerns are weighing on the financials sector: margin compression risk and retail & MFI asset quality stress.
1. Margin compression risk: Large banks could see pressure on net interest margins once rate cuts begin.
2. Retail & MFI asset quality stress: This risk is more relevant for NBFCs, microfinance institutions and smaller lenders.
He also stated that the concerns affect different segments and large banks remain fundamentally strong with stable asset quality and balance sheets. NBFCs, he said, may paradoxically benefit from rate cuts because their liabilities reprice faster.
Which stocks may offer surprise opportunities?
Raychaudhuri also revealed an interesting internal study. Despite Nifty and Sensex hitting all-time highs, about 90 stocks with market cap above USD 500 million are trading near their 52-week lows, many of them in the midcap and smallcap universe. A large number of these companies have solid earnings growth forecasts, clean balance sheets, and low or negative net debt.
He said that this creates a “relatively easy” screening opportunity for investors looking for value outside large caps.
What investors should watch next
Raychaudhuri said the next six months will depend on three key triggers as follows:
- RBI’s likely rate cuts and how quickly they translate into lower lending rates.
- Recovery in consumption demand, especially after the festive period.
- Earnings upgrades, expected between January and March.
Until then, he advises a selective approach, especially in autos and midcaps, while staying constructive on frontline banks.
(Disclaimer: The above article is meant for informational purposes only, and should not be considered as any investment advice. ET NOW DIGITAL suggests its readers/audience to consult their financial advisors before making any money related decisions.)
