He told ET Now that while early signs of improvement are visible, true earnings momentum will emerge only next year—powered by a key policy pivot, rate cuts and rising consumption.
Consumption cycle returning after years of investment-led strategy
Sivaram said the government’s strong focus on capital expenditure in recent years came at the cost of consumption, which was “nobody’s theme” until recently.
But that has now changed and GST rate cuts, tax reductions in the FY Budget, lower inflation, and slower execution of capex plans are together shifting attention back to consumer demand. “It takes 6–12 months for these measures to play out, and we expect the full impact in 2026,” he said.
RBI likely to cut rates twice; Inflation numbers ‘mathematically wrong’
According to Sivaram, India’s nominal GDP is stuck in single digits due to near-zero WPI inflation, depressing earnings and fiscal maths.
He believes:
- RBI’s inflation projections are overstated by 100 bps,
- CPI excluding gold is negative,
- India needs 4–5% inflation for healthy earnings growth.
He expects two rate cuts of 25 bps each, beginning immediately, calling earlier tightening a result of faulty data assessment.
Earnings growth could hit 15% next year
If inflation normalises and rate cuts begin soon, Sivaram expects at least 15% earnings growth next year, with early signs likely visible by Q4. He cautions that global macro risks remain the biggest unknown.
Nominal GDP numbers are misleading—and dangerous
Sivaram highlighted that the current 7.5% real GDP print is inflated due to statistical quirks. “In the real economy, it doesn’t feel like 7.5%,” he said, noting that low nominal GDP hurts:
- Government fiscal deficit targets
- Corporate pricing power
- Market earnings momentum
“It is a bigger problem than people realise,” he said.
Government has done enough: Now let policies play out
He believes no additional stimulus is needed: “The pivot from investment to consumption was essential… Now the measures just need time.”
Where to invest: Domestic-facing themes will lead
Sivaram recommends shifting portfolios toward inward-driven growth stories:
- Banks (rate cycle ending, credit growth steady)
- NBFCs (lower funding costs)
- Discretionary consumption
- Pharma and select commodities
- Gold, which he expects to deliver 10%-plus annual returns as central banks diversify away from the dollar
Mid- and smallcaps: Some hype, some pain
He said the correction in smaller stocks was overdue, as many were trading at steep premiums despite weak earnings. “Where earnings are strong, they’ll come back. Where hype drove valuations, corrections will be deeper.”
