Why Consumption Trumps Capital Expenditure in Current Market Conditions
Rajiv Batra, Head of Asia & Co-Head of Global Emerging Markets Equity Strategy at JPMorgan, emphasizes the importance of consumption over capital expenditure in the current market conditions, driven by fiscal policies and domestic demand in India.
ConsumptionCapital ExpenditureRajiv BatraJpmorganMarket ConditionsReal Estate NewsAug 22, 2025
This approach is reflected in the portfolio allocation, which is overweight on financials, consumer staples, discretionary (excluding auto), healthcare, power, defence, and real estate. Conversely, the portfolio is underweight on IT, pharma, and auto sectors. The rationale behind this strategy is the expectation that global growth will slow down, particularly in the US, where JPMorgan forecasts GDP growth to be around 1.6% this year and 1.5% next year, significantly below the potential growth mark of 2.5-3%.
Batra explains that the market is currently in a state of mixed emotions, with both positive and negative factors at play. On one hand, the proposed Goods and Services Tax (GST) rationalization and other fiscal supports are seen as positive developments. On the other hand, there is uncertainty surrounding US tariffs, which could have a negative impact on GDP growth. Despite the positive macro data, the market has not moved much due to the ongoing stress over the potential 50% tariff.
The market is discounting the potential negative impact of the tariff, which could range from 40 to 80 basis points on GDP. However, if the tariff is temporary and the GST rationalization provides a 60 basis point boost, the net accretion to GDP growth could be 100 basis points. This positive impact is not yet fully priced into the market, and Batra emphasizes the importance of focusing on the fundamentals and quality of the market rather than short-term geopolitical uncertainties.
For investors, it is crucial to be prepared for both the best and worst-case scenarios. In the worst-case scenario, where the 50% tariff remains a drag, the market might experience volatility. However, if the positivity from GST rationalization kicks in during the festive season, the market could see a significant boost. Batra notes that the Indian domestic investor is becoming smarter and using such opportunities to invest in quality names.
When it comes to sectoral performance, Batra believes that financials, consumer staples, discretionary (excluding auto), healthcare, power, and defence will participate the most in the rally. The preference for consumption over capex is a theme that has been consistent since February, driven by fiscal subsidies, tax rate cuts for the middle class, and potential GST normalization. These measures are expected to boost consumption, which has been a weak spot for the country for the past five years.
Real estate is another sector that Batra remains optimistic about. After a strong performance over the past three to four years, the sector has slowed down due to monetary policy tightening and balance sheet reduction. However, with recent repo rate cuts and CRR cuts, the policy is now tilted towards easing. Batra expects positive commentary to emerge in the coming quarters, especially as mortgage rates hit a seven handle, which historically marks an inflection point for demand in the real estate sector. The festive season and lower interest rates are expected to further benefit the real estate market.
In summary, Batra's strategy is to focus on domestic demand and consumption, driven by supportive fiscal policies. This approach is expected to benefit sectors such as financials, consumer staples, healthcare, power, and defence, while IT, pharma, and auto sectors remain underweight. The real estate sector, despite recent challenges, is also expected to see a positive turnaround.
Frequently Asked Questions
What is the main focus of Rajiv Batra's investment strategy?
Rajiv Batra's investment strategy focuses on consumption over capital expenditure, driven by fiscal policies that support domestic demand in India and other Asian emerging markets.
How does the proposed GST rationalization impact the market?
The proposed GST rationalization is seen as a positive development, providing a potential 60 basis point boost to GDP growth, which is not yet fully priced into the market.
What sectors are overweight in the portfolio?
The portfolio is overweight on financials, consumer staples, discretionary (excluding auto), healthcare, power, defence, and real estate.
What is the expected impact of US tariffs on India's GDP?
The potential 50% tariff could have a negative impact on GDP growth, ranging from 40 to 80 basis points, but this could be offset by positive fiscal measures like GST rationalization.
Why is JPMorgan optimistic about the real estate sector?
JPMorgan is optimistic about the real estate sector due to recent repo rate cuts and CRR cuts, which are expected to boost demand, especially during the festive season and with lower interest rates.
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