Fundamentally for us, the base of the Nifty continues to be 11,400 and any sharp dip below 12,000 would be a good opportunity to accumulate good quality stocks.
Fiscal deficit will surely be more than target of 3.3 percent. But more importantly, Budget should be a transparent statement on fiscal deficit and a clear roadmap of how the government proposes to bring it down over the next 2-3 years, Shailendra Kumar, Chief Investment Officer at Narnolia Investment Advisors said in an exclusive interview with Moneycontrol's Sunil Shankar Matkar.
Q: What are your expectations from the upcoming Budget? Do you think it will turn out to be big, considering the economic slowdown?
Backdrop of slowdown makes the forthcoming budget an important event. Whether it would be a normal budgeting exercise or will it have the blueprint of economic reforms is key monitorable. We are looking forward to a transparent budget with a clear fiscal roadmap along with measures to improve the ease of doing business and boost demand in the economy.
Q: Do you think the government will be able to meet this fiscal deficit target? If not, what would be the comfortable level for market?
As the things stand right now in terms of divestment and tax collection, fiscal deficit will surely be above the budgeted number. There are indications of a shortfall of Rs 2 trillion in terms of tax collection target and more than Rs 50,000 crore shortfall in terms of budgeted target of divestment. So, the fiscal deficit will surely be more than target of 3.3 percent. But more important than the actual number is a transparent statement on fiscal deficit and a clear roadmap of how the government proposes to bring it down over the next 2-3 years. There are issues with various off-balance sheet items related to NHAI, Food Corporation etc.
Also, advance bookings of revenue and postponing some current year expenditure to the next adds to the opaqueness surrounding the deficit numbers and that need to be addressed. So market would be comfortable with a higher deficit number as long as it looks authentic and the measures are announced to get it back to the lower levels over next 2-3 years. A credible roadmap for aggressive monetization of assets would be highly helpful.
Q: Which are the sectors that are likely to hog the limelight in this Budget 2020 and why?
Broad slowdown in consumption along with woes of the financial sector and real estate is behind the current negative sentiment in the economy and these needs to be rightly addressed. Though some steps have been taken in this direction, the extent of the problem at hand requires much more. To boost auto demand a comprehensive scrappage program similar to the one undertaken by multiple countries in 2009 is needed. Auto and auto ancillary is a large component to our manufacturing GDP. Also, measures are expected for multiple industries that face strong and unfair competition from Chinese imports; our trade deficit with China has grown at a very fast clip to touch nearly $60 billion.
Q: Do you think infrastructure could turn out to be a strong beneficiary in the upcoming Budget?
National infrastructure pipeline of Rs 102 lakh crore has already been announced so we do not expect any new announcements in terms of projects but the budget will bring clarity on how the funding will happen.
Q: What are the expectations from Budget 2020 from investors or market perspective?
A credible fiscal deficit numbers and an aggressive asset monetization plan is key for the forthcoming budget to become a positive trigger. Clarity on fiscal deficit will help monetary policy to remain accommodative which is critical for the higher valuation multiple in the equity market. Also, abolition of tax on long term capital gains would be important from market perspective. Recently rural demand growth has slowed and that necessitates higher rural spending.
Q: Do you expect sharp correction in the market after the Budget 2020 and can the Nifty test 11,000 before moving towards 13,000 mark?
If the forthcoming budget disappoints some sell-off can surely be seen. But the sell-off will not be large as there is an absence of a leveraged position in the market. Most of the purchases that we have seen lately are mostly in the mid and smallcap space and appear genuine long term investment money.
Fundamentally for us, the base of the Nifty continues to be 11,400 and any sharp dip below 12,000 would be a good opportunity to accumulate good quality stocks. We believe that the worst of the economic slowdown is behind us and also corporate earnings would be quite better in FY21.
Q: Will it be a bumper year for mid-smallcaps?
Calendar 2020 would be a much better year for mid and smallcap space. A smallcap company is like making a leveraged bet on the economy. Last two years as the economy went into trouble, this mid and smallcap space saw a massive correction. And now as we hope for a better economy, so this space looks attractive again. Whether there would be a kind of bumper rally would depend on how monetary policy will stay all through the year. If cycle of monetary easing reverses then one needs to become cautious.
Q: Will the major tweak in personal income tax be a game changer?
Lowering personal income tax rate along with incentives for housing and financial investments like equities would help cheer up the market sentiment and also will be a mild catalyst for consumption growth but I doubt whether that will be a structural game changer. Structural change requires a strong reform boost. Though measures like raising the cap on interest deduction for a home loan is desired.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.