Daily Voice: Incentivizing green energy, attracting foreign investment likely seen in Budget 2025, says this fund manager

Rishabh Nahar is the Partner and Fund Manager at Qode Advisors

In the FY26 budget, the emphasis will likely be on incentivizing green energy, boosting manufacturing, and attracting more foreign investment into India, said Rishabh Nahar, Partner and Fund Manager at Qode Advisors in an interview to Moneycontrol.

Further, given the current pace of capital expenditure, he believes it looks unlikely that the government will meet its capex targets for FY25.

According to him, the equity markets could continue to experience extreme volatility following the budget. However, "the budget itself is not the sole factor driving this volatility. The global landscape is changing rapidly, which is contributing to the market fluctuations," said Nahar with over nine years of experience in equity and quantitative research.

Are you convinced by the commentary from IT companies post-Q3 results, before taking a bet on these stocks?

IT companies have faced some headwinds this quarter (Q3FY25) but are in better shape than earlier this year. However, we believe there are better businesses and sectors to focus on this year (2025). While management guidance is positive, it’s not aggressive enough to suggest higher double-digit growth. Instead of traditional IT companies, investors should look at newer-age technology businesses that are involved in cutting-edge projects with a more aggressive growth outlook.

Do you see the government meeting its current financial year's capex target? Will the capex target for the next fiscal year (FY26) be significantly higher than the current year's?

India’s capital expenditure has risen significantly over the years, with a large push in infrastructure spending. The FY25 capex target was set at Rs 11 lakh crore. From April to November, the government utilized 46% of this target, compared to 58% in the same period of the previous year. To meet the target, the government will need to accelerate spending in the second half. Given the current pace, it looks unlikely that the government will meet its capex targets for FY25.

Based on Prime Minister Narendra Modi’s recent interviews, it appears that the FY26 capex target will be much more aggressive than FY25. The government remains bullish about changing India’s global image, and we’ve already seen significant spending on infrastructure, green energy, and manufacturing. This momentum will most likely continue into FY26.

Where do you think the government will focus while preparing the Union Budget for FY26?

In the FY25 budget, the government focused on streamlining the tax regime and modernizing the entire system. For the FY26 budget, the emphasis will likely be on incentivizing green energy, boosting manufacturing, and attracting more foreign investment into India.

Year after year, the government has worked on making the income tax system more transparent and creating an environment conducive to economic growth. This year, the focus will be on increasing foreign investor participation in India’s growth story. In the past, new-age businesses often set up entities in Singapore and other similar countries to attract capital, and policymakers are likely to focus on making it easier to raise capital from foreign investors in India.

Do you foresee further corrections in mid-cap and small-cap stocks, as many experts still consider valuations in both segments to be expensive?

Mid- and small-cap stocks have seen a 15-20% correction on an index level, with many individual stocks experiencing sharper declines. If you look at data from the past 15-20 years, such corrections are seen every 2-3 years, so expecting them would be reasonable. We see this as an opportunity to start building a position. If you have a long-term view, this seems like a great time to enter. Timing the bottom of a bear market is difficult, and a lot of money is lost while waiting for a major drawdown. We believe the country is well-positioned for the next five years. While there may be further pain in the short term, any reversal will likely be faster than anticipated.

Are you a buyer in the consumption space, hoping for a revival in FY26?

We are buyers when we see a 20% correction and no major macroeconomic changes. The country has a great government, a stable environment, and a young population—all factors that set the stage for explosive growth in the coming years. If you pick the right businesses, there is significant potential for returns. We generally avoid making predictions with a one-year horizon. However, if you extend your outlook to 3-5 years, consumption will likely be one of the key sectors to focus on.

What challenges do you anticipate for the equity market post-Union Budget?

The equity markets could continue to experience extreme volatility following the budget. However, the budget itself is not the sole factor driving this volatility. The global landscape is changing rapidly, which is contributing to the market fluctuations. Drawdowns are a natural part of the market cycle. Volatility and drawdowns are testing times for investors, but in this business, you get paid for your emotional intelligence and ability to withstand large market movements. Even if the next few months are rough, investors with a long-term view and a focus on quality businesses with strong fundamentals will likely see substantial wealth creation over the next five years.