Daily Voice | This investment professional expects no major surprises in budget; pegs on chemical space

Arun Chulani is the Co- Founder of First Water Capital Fund

After recent correction and consolidation following record high, "the easy gains seem to be out of the system," Arun Chulani, Co-Founder of First Water Capital Fund says in an interview with Moneycontrol.

From here on in, he feels it is likely to be a grind and true market discipline and ability will come to the forefront, especially when it comes to holding onto one's gains when the drawdown comes.

On the interim budget scheduled to be released on February 1, he believes that with elections around the corner, he is unlikely to see any major surprises.

Among sectors, "We are quite interested in the chemical space. Many chemical companies have already corrected from peaks due to cuts in weak chemical prices caused by the weak Chinese economy," says this seasoned investment professional with over 20 years of experience.

Considering the trend, do you think the market seems to have formed the top on the benchmark indices now and may be getting into correction mode?

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The easy gains seem to be out of the system. From here on in, it is likely to be a grind and true market discipline and ability will come to the forefront, especially when it comes to holding onto one's gains when the drawdown comes.

What happens in the short to medium term is anyone's guess. The markets may or may not be correct, but they may just consolidate with a time-wise correction.

Do you see more concerns on the domestic side than the global side in the coming months that can keep the market volatile?

This is the year of elections, with more people voting in 2024 than at any time in history. Recent events suggest that there will be a continuation of the current government in India.

Also read: Budget and Markets: Will the FM spook the F&O party by hiking securities transaction tax?

It is mainly in the rest of the world where we may see further triggers of volatility. If we look across the pond, the elections in the US seem to be packed with twists and turns and may create uncertainty.

Inflation seems to be primarily contained, but with China yet to truly roar, the dragon may throw in a curve ball.

As per Jerome Powell-led Federal Open Market Committee, interest rates are on the cards to be cut in 2024, but this is simply pushing the can down the line with regards to US debt.

And of course, there seems to be no end to geopolitical issues and more recently the issues surrounding the Red Sea.

Beyond this, we remain constructive of the prospects of corporate India.

Do you see any major risk in the banking & financial services sector, especially after reading corporate earnings for Q3FY24?

While we reserve the right to be wrong, we see no major risk envisioned for now, though NPAs (non-performing assets) seem to be at cyclical lows and as loans grow, they too will likely tick up.

But this is unlikely to happen in the near term, given that a clean-up was done post IL&FS in 2018/19 and a lot of the weak hands folded during COVID.

Do you see any major announcements in the Interim Budget that can hit the equity market sentiment?

I believe that with elections around the corner, we are unlikely to see any major surprises. At least I hope not.

Click Here To Read All Budget Related News

Which are the sectors that you want to add to your portfolio if there is a further market correction?

We are quite interested in the chemical space. Many chemical companies have already corrected from peaks due to cuts in weak chemical prices caused by the weak Chinese economy.

While price recovery is yet to be seen, it becomes a decent value opportunity for investment in good companies with decent valuations. Companies involved in water treatment, solar and construction seem well placed as well.

We are also interested in the infra space, which we have been well entrenched in since 2018. Many companies are still experiencing strong order books and it seems like a multi-year wave thanks to government spending.

Also read: Vodafone Idea likely to report marginal revenue growth in Q3; subscriber loss to continue: Analysts

Are you bullish on the pharma and healthcare sectors which generally play a defensive role?

Today, it feels like a lot of the value is priced in given the good run-up. So, as for being defensive, they may correct with the rest of the market should that happen.

Have you spotted any concerns after reading the corporate earnings announced so far?

Again it is very sector-specific, and initial trends have been mixed. While a few names have disappointed, a number seem to be in line with market expectations.

However, it is still too early to give any clear view as the results are still coming in.

What is your take on the IT sector that has been in consolidation mode but not getting into major correction, especially after corporate earnings?

The IT sector should track the interest cycle, especially in the US and Europe as they are dependent primarily on foreign clients, especially in the financial sector.

Disclaimer: The views and tips expressed by investment experts on Moneycontrol.com are their own, not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.