'Short term volatility is likely due to various factors, global and domestic; investors may use this as an opportunity to increase the allocation to equities.'
Mitesh Dalal, Chief Investment Strategist, Standard Chartered Securities (India) Ltd, tells Prasanna D Zore/Rediff.com why the markets will take the Budget announcements positively.
How do you look at the proposals announced in Budget 2022-2023 from the markets's point of view?
The Budget was positive with an emphasis to drive the economic growth. The core focus of raising capital expenditure to Rs 10.7 trillion (Rs 10.7 lah crore, which is +38 per cent year-on-year) via higher infrastructure spends was the spotlight. The Budget focussed on the strategy of driving capital expenditure to drive growth.
Without undergoing sharp fiscal consolidation or populist proposals, the Budget has hit the familiar strategy of driving capital expenditure to drive growth, with the intention of crowding in private investment through higher public spending.
Markets are likely to take these announcements as positive for long term given the strong focus on faster economic growth.
Which among the Budget announcements would you call market-friendly and why?
Higher focus on capital expenditure is reflected via increase in capital allocation (versus previous Budget estimates) to the transport and infra sector (+51 per cent), IT and telecom (+50 per cent), urban development (+40 per cent), railways (+17 per cent), defence (+11 per cent) are the key positives.
The announcement of capex to build infrastructure is a long term positive to attract investments in the country. This would help in creating employment in the near to medium term and also attract long term investments and lead to manufacturing activity scaling up in the country.
The Budget also entails increase in the allocation to states for capital investment to Rs 1 trillon (Rs 1 lakh crore) in 2022-2023 which is likely to provide enough leeway to the states to increase their infra spends.
The markets seems to have given a thumbs up, at least that is the Budget day reaction, to the Union Budget.
Do you think this positive momentum will continue for the rest of the year? How do you look at current market valuations?
Overcoming the temptation to garner votes through populist proposals, the current Budget has added catalyst to fuel economic growth.
We remain positive on the broader market with better visibility of CY22. The investment themes and recent correction (due to FPI sell-off) has led to valuations becoming reasonable given the growth prospects.
India stands on strong macro fundamentals and we expect FPIs to return to India. We find decent upside in Indian equities (second consecutive year in a row) via selective sector-stock approach.
How do you look at crude oil prices playing out for the rest of the year? How will it impact Indian equity markets if crude spikes above $100 per barrel? The US Fed rate hike?
We remain positive on the broader market; however, global events in the form of 1. Likely higher interest rates in US and unwinding of the liquidity; 2. Tension between Russia and Ukraine; 3. Higher crude oil prices may have impact on Indian equities which could be short lived.
The long term view on the markets remains positive with no major risk for a significant drawdown on indices.
Long term investors should use these opportunities in the form of minor corrections to add to their long term equity portfolio.
What would be your advice to retail investors going ahead?
Our advice to investors is remain invested in equities for the long term.
Short term volatility is likely due to various factors, global and domestic; investors may use this as an opportunity to increase the allocation to equities.
What sectors and stocks look promising to you to take advantage of the ambitious capex plan announced by Finance Minister Nirmala Sitharaman?
Our expectations: Thrust on capex with a significant growth in allocation is positive for Infrastructure, Capital Goods and Cement sectors.
Allocation of Rs 600 billion (Rs 60,000 crore) for piped water to 38 million homes is positive for metals and pipes companies,
New battery swapping policy is positive for the auto sector (EV), PLI (production linked incentive) scheme for solar modules (Rs 195 billion) is positive for the companies focussed in renewable sector (solar), telecom (optical fibre companies) to benefit from focus on optical fibre connectivity to all villages.