HomeEconomy NewsSBI’s Soumya Kanti Ghosh expects 75 bps cumulative rate cut in FY26 amid benign inflation outlook
SBI’s Soumya Kanti Ghosh expects 75 bps cumulative rate cut in FY26 amid benign inflation outlook
Nilesh Shah, Managing Director at Kotak Mahindra AMC, stated that investors should focus on strong entrepreneurial ventures in the consumer discretionary, banking, and financial services sectors, as these areas continue to offer promising opportunities.
(Photo Credit : CNBC-TV18)
As 2024-25 (FY25) ends, the Indian economy has witnessed significant volatility across key indicators—markets surged and corrected sharply, the rupee fluctuated, and GDP growth saw dramatic swings. With a new fiscal year on the horizon, all eyes are on the trajectory of growth, liquidity, interest rates, and sectoral opportunities.
To decode what lies ahead, CNBC-TV18's Latha Venkatesh engaged with leading experts—Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India; Rajiv Anand, Deputy Managing Director at Axis Bank; and Nilesh Shah, Managing Director at Kotak Mahindra AMC.
Anand highlighted that 2025 was primarily defined by fiscal, monetary, and regulatory tightening. However, there are now clear signs of easing across these areas. He stated that durable liquidity remains a crucial factor, and the first deposit rate cuts could be seen as early as the first quarter of next year.
Shah stated that investors should look for strong entrepreneurial ventures within consumer discretionary, banking, and financial services sectors, as they continue to present promising opportunities.
Read Here | More RBI rate cuts likely until demand improves: ICICI Prudential AMC
Below are the edited excerpts of the interview.
Q: We are starting at least next year with a lot of positives. There is a huge income tax cut, there is a huge liquidity gush, there are rate cuts. Do we have a better year for consumption, a much better year?
Ghosh: The year, which is closing next week, has been a very remarkable year in terms of not only the macro variables, but also in terms of the political cycle. The elections were held in 64 countries across the world, more than half of the world population, where India had two budget presentation. India had also electoral cycles and also India had two chiefs taking over as the regulatory at the end of the year. Having said that, with specific question on growth, we have possibly seen the worst of growth is over. We had a 5.54% growth in the last quarter. The growth rate has since then recovered, and the markets have also recovered smartly in the last couple of days.
The projections for next year are roughly around a consensus of around 6.5% headline GDP growth. But the good thing about the growth is that a large part of that will possibly be driven by consumption, because consumption growth has recovered last year and this year also, the growth in consumption could be around 6 to 6.5%. Given these facts, the growth rate, even though it may not touch the spectacular highs of 9 or 8% which we had after the COVID, but there could be a smart growth around 6.5% in the next fiscal as of now, and it should be driven by strong consumption growth as we see today.
Q: What would you bet on in terms of sectors? Banks were not the big performers in the year that was, do they come back? Does consumption, consumer staples come back because there is so much money giveaway?
Consumer discretionary space, from a sector, point of view, looks good. One lakh crore tax rebate has been given to taxpayers. Eight pay commission will put money in the pockets of government employees. Unlikely that this money will be saved or spend on roti, kapada, makaan, hence more likely that this money will be spent on experiences, airline, consumer durables, travel, tourism, health care, education, these are the sectors where we will see more spending happening.
Please remember you have to bet upon entrepreneur, while on one side consumer FMCG companies are talking about slow down, on other side, a sports company, like Decathlon which is in unlisted space, is growing better rapid pace. You will be betting upon entrepreneurs within consumer discretionary space and also banking and financial services.
Q: Before I ask you about credit growth, when is the first deposit cut, according to you, we will just have the liquidity numbers flashing as you talk. It is almost seven lakh crore that has been pumped in by the Reserve Bank, and the Reserve Bank has not yet even declared its dividend so when is the first deposit cut for you?
Anand: To start with 2025, 2025 was really all about fiscal, monetary and regulatory tightening. But the good news really is that in each of these cases, we are now beginning to see some ease of. You have seen both regulators talk about the fact that there is a cost to compliance as well. Second is from a fiscal perspective, where the tightening was 80 basis points in 24 and 25 the expectation is that it will be about 40 basis points in 25-26 and we have already seen, as you rightly pointed out, is significant amount of easing of liquidity. But to the question that you are asking, what's happened so far is that, obviously the pass through has happened on the asset side, because much of the assets are now priced to market linked rates.
But liquidity, even after all this still continues to be in deficit. We do anticipate that once the government spending happens over the year end, as we come into first quarter of next year, we should start to see liquidity in surplus, and to the point that you made, the Reserve Bank of India (RBI) dividend gets added to the system, we will see easing of liquidity in the first half the year. Most important, durable liquidity is the key that one needs to look for. Therefore, I do believe that the first deposit cuts we will probably see in in the first quarter of next year.
Q: I want to pin all three of you to the financial sector first, because that's the sector that didn't do that well in the year that was. How many rate cuts? Because initially, rate cut is pain for banks and pleasure for NBFCs so how many rate cuts?
Ghosh: If you ask me the specific question on rate cut as of today, if you look into the inflation trajectory for next fiscal, most of the numbers in the first seven to eight months are looking below 4% as of now. From that perspective, it's such a benign inflation scenario. I can expect at least a cumulative 75 basis point rate cut, in addition to the 25-basis point rate cut which we have. The terminal report could be anywhere between 5.5 to 5.75%
Q: Now that will be very big for the bank's asset book Nilesh. Do you think this year also will be a year of NBFCs rather than banks?
Shah: Within banking and financial services, men will be separated from the boys, the deposit franchisee will become the biggest driver for bank or NBFC. Ability to mobilise low cost resources will be key differentiator. The second will be credit culture. We do see stress in unsecured lending, microfinance. It seems to be bottoming out, probably over next quarter, but one will have to wait and watch.
Finally, within banking and financial services, valuation makes all the difference. This year, we have seen some of the lower valued companies in banking and financial services giving good return. It is not just one factor which is going to drive banking or NBFC, it's combination of your low-cost deposit franchisee, credit culture and valuation combined.
For the entire discussion, watch the accompanying video
Also Read | Markets may be underpricing tariff risks, earnings could take a hit: Citi’s Drew Pettit
To decode what lies ahead, CNBC-TV18's Latha Venkatesh engaged with leading experts—Soumya Kanti Ghosh, Group Chief Economic Adviser at State Bank of India; Rajiv Anand, Deputy Managing Director at Axis Bank; and Nilesh Shah, Managing Director at Kotak Mahindra AMC.
Ghosh anticipates a cumulative rate cut of at least 75 basis points in the coming fiscal year, in addition to the 25-basis point reduction already implemented.
Anand highlighted that 2025 was primarily defined by fiscal, monetary, and regulatory tightening. However, there are now clear signs of easing across these areas. He stated that durable liquidity remains a crucial factor, and the first deposit rate cuts could be seen as early as the first quarter of next year.
Shah stated that investors should look for strong entrepreneurial ventures within consumer discretionary, banking, and financial services sectors, as they continue to present promising opportunities.
Read Here | More RBI rate cuts likely until demand improves: ICICI Prudential AMC
Below are the edited excerpts of the interview.
Q: We are starting at least next year with a lot of positives. There is a huge income tax cut, there is a huge liquidity gush, there are rate cuts. Do we have a better year for consumption, a much better year?
Ghosh: The year, which is closing next week, has been a very remarkable year in terms of not only the macro variables, but also in terms of the political cycle. The elections were held in 64 countries across the world, more than half of the world population, where India had two budget presentation. India had also electoral cycles and also India had two chiefs taking over as the regulatory at the end of the year. Having said that, with specific question on growth, we have possibly seen the worst of growth is over. We had a 5.54% growth in the last quarter. The growth rate has since then recovered, and the markets have also recovered smartly in the last couple of days.
The projections for next year are roughly around a consensus of around 6.5% headline GDP growth. But the good thing about the growth is that a large part of that will possibly be driven by consumption, because consumption growth has recovered last year and this year also, the growth in consumption could be around 6 to 6.5%. Given these facts, the growth rate, even though it may not touch the spectacular highs of 9 or 8% which we had after the COVID, but there could be a smart growth around 6.5% in the next fiscal as of now, and it should be driven by strong consumption growth as we see today.
Q: What would you bet on in terms of sectors? Banks were not the big performers in the year that was, do they come back? Does consumption, consumer staples come back because there is so much money giveaway?
Shah: Indian equity market is now moving from top down to bottom up story, we will have to bet upon entrepreneur. Technology is disrupting the world at the pace and at the scale, which is unheard of any entrepreneur who is not writing the curve of technology adoption will become like dinosaur a history. Markets are going to become far more bottom up oriented.
Consumer discretionary space, from a sector, point of view, looks good. One lakh crore tax rebate has been given to taxpayers. Eight pay commission will put money in the pockets of government employees. Unlikely that this money will be saved or spend on roti, kapada, makaan, hence more likely that this money will be spent on experiences, airline, consumer durables, travel, tourism, health care, education, these are the sectors where we will see more spending happening.
Please remember you have to bet upon entrepreneur, while on one side consumer FMCG companies are talking about slow down, on other side, a sports company, like Decathlon which is in unlisted space, is growing better rapid pace. You will be betting upon entrepreneurs within consumer discretionary space and also banking and financial services.
Q: Before I ask you about credit growth, when is the first deposit cut, according to you, we will just have the liquidity numbers flashing as you talk. It is almost seven lakh crore that has been pumped in by the Reserve Bank, and the Reserve Bank has not yet even declared its dividend so when is the first deposit cut for you?
Anand: To start with 2025, 2025 was really all about fiscal, monetary and regulatory tightening. But the good news really is that in each of these cases, we are now beginning to see some ease of. You have seen both regulators talk about the fact that there is a cost to compliance as well. Second is from a fiscal perspective, where the tightening was 80 basis points in 24 and 25 the expectation is that it will be about 40 basis points in 25-26 and we have already seen, as you rightly pointed out, is significant amount of easing of liquidity. But to the question that you are asking, what's happened so far is that, obviously the pass through has happened on the asset side, because much of the assets are now priced to market linked rates.
But liquidity, even after all this still continues to be in deficit. We do anticipate that once the government spending happens over the year end, as we come into first quarter of next year, we should start to see liquidity in surplus, and to the point that you made, the Reserve Bank of India (RBI) dividend gets added to the system, we will see easing of liquidity in the first half the year. Most important, durable liquidity is the key that one needs to look for. Therefore, I do believe that the first deposit cuts we will probably see in in the first quarter of next year.
Q: I want to pin all three of you to the financial sector first, because that's the sector that didn't do that well in the year that was. How many rate cuts? Because initially, rate cut is pain for banks and pleasure for NBFCs so how many rate cuts?
Ghosh: If you ask me the specific question on rate cut as of today, if you look into the inflation trajectory for next fiscal, most of the numbers in the first seven to eight months are looking below 4% as of now. From that perspective, it's such a benign inflation scenario. I can expect at least a cumulative 75 basis point rate cut, in addition to the 25-basis point rate cut which we have. The terminal report could be anywhere between 5.5 to 5.75%
Q: Now that will be very big for the bank's asset book Nilesh. Do you think this year also will be a year of NBFCs rather than banks?
Shah: Within banking and financial services, men will be separated from the boys, the deposit franchisee will become the biggest driver for bank or NBFC. Ability to mobilise low cost resources will be key differentiator. The second will be credit culture. We do see stress in unsecured lending, microfinance. It seems to be bottoming out, probably over next quarter, but one will have to wait and watch.
Finally, within banking and financial services, valuation makes all the difference. This year, we have seen some of the lower valued companies in banking and financial services giving good return. It is not just one factor which is going to drive banking or NBFC, it's combination of your low-cost deposit franchisee, credit culture and valuation combined.
For the entire discussion, watch the accompanying video
Also Read | Markets may be underpricing tariff risks, earnings could take a hit: Citi’s Drew Pettit
(Edited by : Unnikrishnan)
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