Daily Voice: HDFC AMC's Rakesh Sethia believes govt to achieve FY25 fiscal deficit target and likely to maintain 4.5% target for FY26

Enough has been said about the difficulties and pitfalls of trying to predict market tops and bottoms. We are positive on Indian equities over the medium to long term driven by expectations of healthy corporate performance which is underpinned by structurally robust economic growth prospects of our country and a pro-growth policy environment. Investing in volatile markets via a systematic route such as SIP for the long term could be useful.

What will be the impact of falling rupee on the manufacturing sectors?

The current FX volatility to a large extent is driven by policy expectations and uncertainties surrounding the Trump administration in the US. Although a depreciating rupee theoretically enhances export competitiveness, experience shows that few businesses tend to retain these gains. Therefore, we focus more on assessing competitiveness and profitability based on internal business factors rather than external macroeconomic conditions.

Will the government stick to its 4.5% fiscal deficit commitment for FY26 in the Budget?

We believe the government is on course to achieve its fiscal deficit target for FY25E and is likely to maintain its ~4.5% target for FY26E. This approach helps prevent government borrowing from crowding out private sector borrowing. Over the past few years, the government has taken the lead in driving the capex cycle in our country, and we may now be at a turning point where the private sector is poised to participate more significantly. Overall, the commitment to the fiscal consolidation path supports more favourable borrowing conditions for corporates.

Which measures, if announced in the Union Budget, could revive investor and market sentiment?

Overall consumption growth has fallen short of expectations, and government capital expenditure has also been sluggish, partly due to multiple elections last year, contributing to weak GDP growth in Q3. In our view, clear government signaling supported by targeted measures to boost both capital expenditure and consumption could improve the near-term growth outlook and restore positive sentiment.

Which sectors have you taken exposure to during the current market correction?

Portfolio changes have been moderate so far. We continue to follow a bottom-up investment strategy, focusing on identifying sustainable businesses with strong growth drivers over the medium to long term that are attractively valued. After carefully evaluating industry trends, business cycles, and a company's position within its sector, we adopt a risk-adjusted approach to portfolio positioning. This methodology is especially critical for the manufacturing theme. While the relative valuation gap between sectors has narrowed, most sectors still trade at a premium relative to their historical averages on an absolute basis.

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