Daily Voice | Nimesh Chandan of Bajaj Finserv AMC picks 6 'megatrends' for a solid portfolio

We expect 2024 to be an eventful year. The most important ones are election, both in India and the US. Continuity of the incumbent government is something which equity markets have already started to price in after the recent state election outcomes. Any adverse election outcomes in June can derail the market sentiment. Currently, we see this as a low-probability event.

Its crucial to monitor the interest rate trajectory in the US. The market currently anticipates a "Goldilocks" scenario, with interest rates easing without a recession. Any deviation from this assumption could introduce significant volatility to the equity markets.

Also read: Davos 2024: India to be major semiconductor destination in 5 years, says Ashwini Vaishnaw

Do you expect the government to scale down its divestment target for FY25 in the interim budget?

Conventionally, an interim budget is supposed to be a statement of accounts. The government cannot table economic survey before an interim budget and can plan financials only for the next four months. Hence, we don’t expect full-year disinvestment targets to be divulged during the interim budget.

What could be the possible areas on the radar of the finance ministry in the interim budget?

Interim budgets traditionally do not give a lot of head room to the FM as far as budget allocations are concerned. However, the last interim budget presented on February 1, 2019 included significant policy announcements. So, there could be more policy announcements but not a lot of budgetary allocation to back them up.

Also read: HDFC Bank share crash and the perils of equity funds that hug their benchmarks

We expect the focus on capex to continue, but at a slower pace than what has been seen in the last few years (over 30 percent CAGR between FY21 to FY24 BE) due to tight fiscal consolidation path. Railways might be a focus area for capex announcements.

Do you expect buying interest in technology sector to pick up one FY24 numbers are out?

The technology sector can be bifurcated in two parts: IT services and  recently listed consumer technologies.

For IT services, there is a continuation of earnings downgrade this quarter also. We still believe things will get worse economically before it gets better in the western world. Hence, it makes sense to under-own export-oriented tech businesses.

However, some of the consumer tech businesses have strong business moats and expanding opportunity size. They are balancing growth well and moving towards profitability. So, its an exciting space to be invested in.

Sectors where you have overweight rating and why?

We have a different thought process while looking at portfolio allocation. Instead of looking at sectors, we think a long-term equity investor’s portfolio right now should have constituents which benefits from "megatrends" that are happening around us. These megatrends are changes in technology, regulatory, economic, nature, demography and social that are happening around us.

Each of these trends can transform businesses environment and the world around us. The endeavour of a model portfolio should be to bet on businesses which benefits from these megatrends. Tactically, the way things are happening around us, it makes sense to focus on domestic stories, both capex driven and consumption and steer clear of export-oriented businesses, which are at the risk of slowdown due to a possible recession in the western world.

Also read: RBI Governor says topic of rate cut not on table at this time, focus to bring inflation to 4%

Do you expect re-rating to continue in the thermal utilities space?

We are constructive on the entire power value chain. Thermal utilities, as a space, is seeing a demand revival. However, we must look at these businesses from a perspective of what could be the possible terminal value, especially when the world is moving towards renewables rapidly.

Within the power value chain, we are positive on the transmission & distribution a bit more. This whole shift toward renewable is creating a very strong environment not only in India but globally as well.

Do you see significant jump in private capex post general elections?

In case the government is re-elected, we expect the focus on capex to continue but at a slower pace than what has been seen in the last few years due to tight fiscal consolidation path.

Will the Reserve Bank of India cut repo rate by 50 bps only in 2024?

The rally in domestic government bonds has been tepid even though multiple positives have emerged in the form of near-target core inflation, reduced political risk, and expectation of flows post-bond inclusion. This is because the growth impulse remains strong, food inflation surprises on the upside, and the rate differential with the US remains near the narrowest on record.

The RBI is in a wait-and-watch mode with liquidity management as the interim focus. A synchronised global growth downturn, an eventual slowdown in India’s domestic demand and contained core inflation staying in the 4.0-4.5 percent range over the coming year will mean the policy focus may shift from inflation control to supporting growth gradually. A lot of this view hinges upon the timing and depth of the rate cuts in the US.

We believe the timing and depth of the Fed rate cut cycle will have a bearing on rate cuts in India. Considering the low policy rate differential, the RBI can be expected to cut rates by a lower magnitude than the Fed. As of now, 50-75 bps rates cut in a shallow rate cut cycle looks like a more plausible scenario.

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.