Will Nirmalaji Cheer The Markets?

'We are confident that over the next few years the government will strike a fine balance between populist measures and growth, and manage coalition partners well.'

"Investors should consider sectors that stand to benefit from the government's infrastructure push, as well as potential advancements in the defence sector, which remains a key area of focus," Nischal Maheshwari, CEO for institutional equities at Centrum Broking, tells Puneet Wadhwa/Business Standard in an e-mail interview as the markets approach the Budget scheduled to be announced on July 23.

The markets are now at the cusp of the Budget. What proposals can surprise them positively and negatively?

Currently, the government is well positioned as their receipts have been robust on the back of buoyant tax collections and an over 100 per cent dividend transfer from the Reserve Bank of India.

With a rather slow first of the calendar year 2024 due to elections and the monsoon season, the government is unlikely to make significant changes in its capex spending.

However, we believe that higher-than-expected importance would be given to populist measures this year, thereby addressing the employment levels and rural stress.

How should investors approach the Budget? Is it time to buy the domestic economy-focused sectors?

With the rural economy poised for a significant rebound and the government's emphasis on infrastructure and manufacturing, we anticipate continuation in policy making here.

The forthcoming Budget should prioritise rural revitalisation through various initiatives, therefore, it is advisable to focus on rural-driven consumption themes.

Additionally, given the favourable monsoon season, increased attention to the agricultural sector is advisable.

Investors should also consider sectors that stand to benefit from the government's infrastructure push, as well as potential advancements in the defence sector, which remains a key area of focus.

Overall, a diversified approach encompassing these growth-oriented sectors could prove beneficial.

Are the markets a bit worried about how the Bharatiya Janata Party will carry out reforms and big bang policy overhaul in such a large coalition?

Even though the BJP wasn't able to garner a majority on its own, it is important that it has formed the government with its pre-poll partners and is not a post-poll alliance. This signals continuity in governance and policy making.

Moreover, with incumbent Cabinet ministers continuing to manage their existing portfolios gives us confidence for stable policy continuation for the next five years.

Is there a worry somewhere lurking in the minds of investors that the government may not last the full-term given the size of the coalition, and the fact that somewhere down the line these coalition partners may extract their pound of flesh?

It is encouraging to note that the pre-poll alliance of the BJP and its partners has remained intact and there was no change to it post elections. There is likely to be continuity in reforms, albeit at a slightly slower pace.

We are confident that over the next few years the government will strike a fine balance between populist measures and growth, and manage coalition partners well. We see the government completing its full term.

How comfortable are you with the overall market valuation at this stage?

Valuations are reasonable and the outlook is improving in information technology, BFSI and FMCG. Defence, engineering and power are clearly overpriced and some profits can be taken.

Can you explain your stance on the banking and the IT sectors?

The IT sector faces near-term challenges with a slowdown in discretionary spending, though green shoots are appearing in consulting, BFSI and TMT segments.

Gen AI is expected to lead the industry's recovery. However, a Rate cut by the Fed (US Federal Reserve) could stimulate demand for IT services.

On the banking side, deposit growth has been lacklustre, likely anchoring overall credit growth.

However, there's anticipation that the finance minister might increase tax-free interest income from the current Rs 10,000 to provide relief on fixed deposit interest income in the Budget, which would aid in increasing liabilities in banks.

When will the foreign investors chase Indian stocks with 'animal spirits'?

Indian markets are providing tough competition to other EMs to attract foreign inflows, but are disadvantaged by elevated valuations. Therefore we don't see foreign flows to be substantial driver of Indian bourses in the near future.

Domestic flows will continue to drive the markets.

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Feature Presentation: Ashish Narsale/Rediff.com