In FY24, the Nifty index delivered ~25 percent. "The expectation of a repeat in successive years might be an irrational thing to do, as equity markets, in general, do not move linearly," Rajesh Cheruvu, MD and Chief Investment Officer at LGT Wealth India says in an interview with Moneycontrol.
However, he feels persisting liquidity conditions could maintain the current market momentum for some time, at least until elections, with higher volatility given rich valuations.
On the theme, Rajesh with more than two decades of experience in the financial services industry believes that rural consumption is likely to see a revival in FY2025, given the weaker than previous years of monsoons and limits on agri-exports.
Do you expect the telecom tariff to increase post-general elections?
Predicting tariff changes in India's telecom sector would require enumerating various data points. The capex requirements for acquiring spectrum and network quality improvements will keep it a persistent capital-guzzling sector that would keep return ratios under check. The competitive intensity has cooled off to the past with the current almost duopoly market structure.
Although regulatory interventions have lessened in the past ten years, the government might limit its ability to take steep hikes to protect consumer interests, influencing tariff adjustments. Hence, graded hikes can be expected as long as they do not impact consumer inflation meaningfully.
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Do you see the equity markets in FY25 clocking similar kinds of returns in the current financial year? What are the challenges for the market?
In FY24, the Nifty index delivered ~25 percent, Mid and Small-cap indices gave ~60& ~75 percent, respectively. The expectation of a repeat in successive years might be an irrational thing to do, as equity markets, in general, do not move linearly. However, persisting liquidity conditions could maintain the current momentum for some time, at least until elections, with higher volatility given rich valuations.
Overall, investor return expectations need to be toned down for 12-month periods. We believe Indian equities will continue to provide strong returns in a 3 years perspective, backed by a healthy macro and corporate earnings outlook supported by an ongoing spurt in government and private investments and a potential revival in rural consumption.
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Do you see the combination of healthy GDP growth with a falling fiscal deficit in the coming years?
Over the next three years, the economic growth outlook appears healthy at ~ 6.5 percent in real terms and at ~10 percent in nominal terms, at least backed by the factors mentioned above. At the same time, per the government's pace of reduction in the past two years and estimates for next year, we could expect it to touch the FRBM Act 2003 objective of 3 percent by FY28.
In the past few years, the government has provided impetus to the economy through infra-spending and incentives to the manufacturing industry towards indigenising and employment creation. But for that, fiscal deficit and government borrowings have been within the realm of the objectives of the FRBM Act. Higher economic growth and lower fiscal deficit will likely bring the cost of capital and interest rates meaningfully lower structurally.
Do you think the interest rate cuts, if any, won't be possible before the last quarter of the current calendar year (from Fed as well as RBI)?
India's domestic macro indicators reflect resilient economic growth among G20 countries. Inflation in India has been under control and in the central bank's expected trajectory. The Reserve Bank of India (RBI) hopes to maintain steady rates in the first half of 2024, with potential rate cuts later in the year due to disinflationary trends.
Ongoing geopolitical frictions and linked supply chain constraints could keep them on their toes in adjusting policy rates. Overall, we could expect to see a change in policy stance and cuts in H2 CY 2024 by both US FED and India RBI.
Are you betting big on the electric vehicle segment? What is your preference - an electric vehicle or ancillary space?
Electric vehicles as a segment will see a gradual adoption in India due to sub-optimal consumer infrastructure and options. We prefer to play this space through ancillaries with interoperability between ICE (internal combustion engine) and EV (electric vehicle) segments.
Do you think the full Union Budget released post-general elections is expected to be a game changer?
Union budgets, off-late, have become mostly a non-event as the government has been emphasising a stable tax environment for businesses and promoting a new tax regime for individuals by removing deductions. Expenditures are also under umbrella programmes like Sagar Mala under medium-term planned spend outlays.
However, post-election budget announcements are used to announce further medium-term plans. Hence, any hopes of short-term measures could be missed, while 3-5-year roadmaps for various segments are key to watch to provide a medium-term path of economic activity.
Which are your top 3 bets/themes for FY25?
Rural consumption is likely to see a revival in FY2025, given the weaker than previous years of monsoons and limits on agri-exports. Based on US Met's initial predictions, the probability of La-Nina conditions in the upcoming season augurs well with average to above-normal monsoons. This, combined with comforting inflation, could allow governments to hike MSPs (minimum support price), which could help the recovery in rural consumption-oriented segments.
The union budget is likely to provide further impetus to the infrastructure and private investments through the enhancement of plans and extension of tax concessions. The run-up in the investment theme could witness more legs. Lowering interest rates could help discretionary spending linked to exports, such as IT services, which could be in focus.
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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