RBI likely to wait on GDP upgrade amid tariff uncertainty, says Garima Kapoor

Synopsis

Elara Capital's Garima Kapoor anticipates a cautious approach from the RBI, awaiting clarity on the festive season's impact and tariff consequences despite a strong Q1 GDP. While expecting inflation to undershoot RBI projections, she acknowledges potential growth headwinds from trade disputes.

India’s growth outlook continues to draw optimism. Yet, Garima Kapoor, Sr VP, Elara Capital, believes the Reserve Bank of India (RBI) will tread cautiously in its upcoming monetary policy.

“I assess that RBI would like to wait out to actually see how the festive season pans out and also to assess the impact of tariffs,” Kapoor said in an interview to ET Now.

She highlighted that the recent 25% plus 25% tariffs on Indian exports have not yet fully played out. Many exporters had frontloaded shipments before the deadline, leaving the true impact still uncertain. While she acknowledged the 7.8% GDP print in the first quarter makes the case for an upgrade stronger, Kapoor believes RBI will prefer clarity on trade before revising its stance.

On inflation, Kapoor struck a more confident note. “RBI’s projection of 3.1% CPI inflation is likely to get undershot by at least 50 basis points, if not more. Our own estimates put it below 2.5% for FY26,” she said. Persistent undershooting of RBI’s earlier projections and the recent GST rate cuts, even with partial pass-through, suggest a significant downside bias in inflation.

The tariff question, however, remains tricky. While OECD has raised India’s outlook, S&P has flagged higher-than-expected tariff shocks. Kapoor believes the first round of 25% tariffs already eroded competitiveness in labor-intensive sectors like textiles and gems. “The next 25 really does not matter significantly. Competitiveness is already lost in the first 25%,” she explained. Still, she estimated a 75–80 basis point hit to headline growth if the US-India trade dispute lingers.

Yet, she remains optimistic about domestic demand. “GST-led reforms, tax rebates, and persistently low inflation mean consumption is likely to see a strong rebound. Festive season data already shows an uptick. Net-net, growth closer to 7% is achievable, negating tariff impact almost completely,” Kapoor said.

When asked about sectors driving growth, Kapoor underlined the consumption theme. “Currently is the time to play consumption emphatically. We prefer premiumization over entry-level consumption. Also, intermediates and platform companies such as lenders or NBFCs are better plays than OEMs, given shifting consumer preferences,” she noted. Large lending financials like Bajaj Finance, she added, are well-positioned to benefit from this cycle.

On private capital expenditure, Kapoor acknowledged persistent challenges. “Despite government frontloading, we failed to see crowding in due to weak consumption visibility, global uncertainty, and tariff-led disruptions. The breakout will come from a durable consumption boost leading to higher capacity utilization,” she said. Kapoor believes that while signs may emerge in FY26, a more meaningful private capex revival is likely only by FY27, aided by pay commission payouts and stronger domestic demand.

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