India's Inflation May Range Between 2.5% And 2.75% In Q2, Q3, Enam Holdings' Sridhar Sivaram Says

India's headline inflation may fall to the range of 2.5–2.75% in the second and third quarter, according to Sridhar Sivaram, investment director, Enam Holdings. The Reserve Bank of India is projecting 3.4–3.8% for the same period.

Enam Holdings projected that RBI would deliver a 50-basis point rate cut in June, which was based on inflation trajectory, Sivaram said. Base effect and distribution of rainfall this year are going to support inflation decline. Vegetable prices have behaved rationally as opposed to past, he said.

India will need some cues from the US Federal Reserve as the interest rate differential between the US and India is at the lowest in 20 years. If there is a support from the Fed, RBI can reduce interest rate further. The RBI may deliver a 25-basis-point rate cut in September, Sivaram said.

Governor Sanjay Malhotra has said that the central bank is data dependent now. So, June's inflation data will be closely watched, he said.

India looks fine to continue its sideways movements, when compared with global macroeconomics. However, market participants are more worried about the US macroeconomics than any other country, he said.

The current tax bill in the US is expected to change the fiscal deficit. Experts are saying that the US fiscal deficit may rise to 7%. Enam Holdings is keeping a eye on yields of US 10-year treasury note. If the yields come closer to 5%, there could be risks in global markets. India will feel the impact if there is a global turmoil, he said.

India's tariffs on certain products, like automobiles, are reasonably high. So, if the country decides to reduce tariff rates, the US will reciprocate. However, with negotiations going on, and the Vietnam-US pact announced, it looks like tariff is a way to generate revenue for the US. This has become complicated, Sivaram said.

India's export to the US is about $80 billion. Hence, in overall context, India will not be as impacted as China and Mexico.