Devang Mehta, Director-Equity Advisory, Spark Capital Private Wealth Management, says capex-oriented sectors, energy efficiency and discretionary consumption are among the themes that look interesting not just in the run-up to the budget but also for the long term as the Indian economy enters the next expansion cycle.
With India due for elections in April-May and the US later, 2024 will be an eventful year for the global economy when inflation, interest rate moves and geopolitical tensions will also be closely tracked.
In an interview to Moneycontrol, Mehta, who has spent more than 23 years in wealth management, says investors should make volatility a friend instead of worrying about it. Edited excerpts:
Do you expect the government to give infrastructure sector a further push in the interim budget?
A full budget for the financial year 2024-25 would be presented in July by the new government elected after the April-May general elections. However, there are a lot of expectations, especially because this will be the current BJP led government’s last budget presentation before the nation goes into elections.
Infrastructure spending as a percentage of GDP increased from 1.13 percent in FY 2019-20 to a budgeted estimate of 3.3 percent of GDP in FY 2023-24. The government has been prioritising capital spending, especially for railways, roads and defence.
On the other hand, over the past two years, spending on urban development and energy as a share of GDP has declined. The government is expected to divert some of its expenses towards improving the port and shipping; energy, especially green and sustainable energy; and urban infrastructure. In this budget, the government’s focus should be on the transition from carbon-dependent to energy-efficient policies.
Also read: Budget and Markets: Will the FM spook the F&O party by hiking securities transaction tax?
Do you see the government taking more measures to boost rural demand?
To generate jobs in the rural sector, the government may announce some incentives to increase investment in rural infrastructure and extend the scope of production-linked incentive (PLI) schemes to sectors such as chemicals and services. One of the ways could be higher spending on building rural infrastructure or providing incentives that improve cash flow.
Broadening the scope of PLI schemes to sectors such as chemicals and services can create demand for more manufacturing. The Union government may allocate higher funds for social sector schemes in the forthcoming interim budget, as increased tax buoyancy may provide it with enough funds and will in turn help the rural economy.
The agriculture sector growth is expected to decelerate to 1.8 percent in the current fiscal year from 4 percent in 2022-23, according to advance estimates of GDP. In an effort to push the agricultural economy ahead, the finance minister may announce some measures that will boost consumption demand.
Also read: This investment professional expects no major surprises in budget
Do you see any change on the tax front in the interim budget?
As I said, this would be more of a vote-on-account rather than the full budget but there are still expectations for an increase in the tax rebate to Rs 7.5 lakh. Such an adjustment would offer much-needed relief, particularly to middle-income taxpayers.
Individuals falling under this income threshold, post standard deductions, would enjoy exemption from income tax, potentially encouraging increased spending and investment, thereby contributing to economic growth.
However, it is imperative for the government to not solely rely on tax rebates. While a higher tax rebate benefits individuals, a holistic approach, including structural reforms and sector-specific policies, is essential for overall economic stability and advancement.
Which are the sectors to focus on in the run-up to the interim budget?
Themes and sectors related to manufacturing, PLI schemes, capex oriented sectors like infra and capital goods, motion management, energy efficiency, discretionary consumption and healthcare seem interesting not only on the anticipation of budgetary announcements but also as India gears up to rise into the new orbit of economic expansion.
Do you see the expects the Nifty to decline below 20,000 before resuming the upmove? Which are the triggers, including related to the banking sector, that the market is looking forward to?
We have entered 2024 seeing a dream rally across markets, multiple sectors and businesses. The sheer velocity of the rally in the broader markets warranted a bit of caution and hence this correction seems to be healthy. The correction primarily stems from sustained selling by foreign institutional investors (FIIs) who have offloaded equities worth Rs 27,830 crore over the past five days.
After such furious rally, there has to be gravity and that will bring in the money lying on the sidelines. There is lot of money waiting to come in via different routes, be it MFs, ETFs or even direct equities. A few percentage points correction here and there will ensure that both equilibrium and sanity are maintained and will ensure longevity of wealth creation.
This is a year full of events. Our own general elections, US elections, the trajectory of inflation and hence interest rates across the globe, geopolitical tensions across regions. Volatility will prevail in the shorter term but for long term investors, its best to make volatility a friend rather than worrying about it. Reacting to daily events is injurious for the health of long term portfolio and such distractions will never let wealth creation fructify.
Which are the sectors that you would bet on in case of a major correction?
Capital goods, infrastructure, manufacturing and allied industries, select BFSI and consumer discretionary and themes related to premiumisation are certain sectors where we would want to keep adding on dips.
Is the worst over for HDFC Bank? Will the stock consolidate from here?
HDFC Bank still accounts for 19 percent of incremental deposits created in the banking system as of December end and this is true for the last nine months and the last few years. The bank expects deposit growth to be influenced by the environment, where banking system liquidity is in a significant deficit, resulting in higher rates.
Like HDFC Bank’s deposit-creating ability, its ability to create quality is also best in class. In the next two or three quarters, NIM can see some improvement. Its return on equity was above 17 percent before the merger with HDFC but has since declined to 15.8 percent as of December end. Also being an over owned stock across institutional investors, short-term corrections and probably a bit of consolidation is bound to happen when there are disappointments.
Having said that, HDFC Bank has been a rock-solid franchise over the last couple of decades. They are just two quarters into the merger, will need sometime to shine through and return to its winning ways.
Do you see any major risk to the banking and NBFCs?
The RBI’s recent policies are targeted at controlling growth in specific categories of personal loans. The RBI governor has raised red flags over the high growth in certain segments of retail credit. He said overall credit growth is broad-based but certain categories of personal loans are “recording very high growth.” He added that the RBI is monitoring credit growth rates in these categories and advised banks and NBFCs to strengthen their risk management.
The RBI has done exceptionally well in staying ahead of the curve and tightening the screws before time, learning from past lessons. The old adage “precaution is better than cure” is what the RBI has been following and that probably will keep the banks and NBFCs in good shape in both good and difficult times.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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