Rakesh Jhunjhunwala to investors: Market has given you a chance, grab it!

The S&P BSE Sensex rallied more than 3,500 points to climb above the 50,000-mark on February 2. The Nifty Bank hit a fresh record high for the first time above 34,000 while Nifty50 is now 350 points away from hitting 15,000.

The data suggests that there is no better time to invest in the market as growth will take the course. D-Street usually discounts everything in advance, and investors would be better off investing in sectors that are likely to benefit from the Budget proposals.

“The rally in the market is broad-based and derived its basic premises from the growth-oriented proposals in the budget across various key sectors of the economy, putting the highest emphasis on self-reliance and transformation into one of the fastest-growing economies of the world,” Dr. Joseph Thomas, Head of Research, Emkay Wealth Management told Moneycontrol.

The worst fear of D-Street was any additional taxes due to COVID but the government has not tinkered with taxes which leaves disposable income in the hands of people and cash flows for corporates that will boost consumption.

There is no doubt that the Finance Minister has checked all the boxes, but the key risk is execution. The Budget has laid the emphasis on Make in India, quality spending on Infra, healthcare, real estate which are key sectors in job creation.

“We believe that the Government surprised the markets with a bold Budget which focus on reviving growth by deficit spending. The Government surprised the markets and went for much-needed deficit spending with the fiscal deficit for the year being relaxed to 9.5% from 3.5%,” Jyoti Roy, DVP, Equity Strategist, Angel Broking Ltd told Moneycontrol.

“Overall the Budget was better than expectations and we would give the Union Budget a 9 out of 10 ratings. Post the budget we continue to maintain our overweight stance on sectors like Chemicals, Auto, consumer durables and technology,” he said.

Moreover, it is clear from the ongoing result season, Roy added that the worst is over for the banking and the NBFC space and therefore, we had gone overweight on the private sector midsized banking and NBFC space.

What should investors do?

The Budget 2021 was a bold Budget from the Indian Government, and for investors, it is best to tweak the portfolio by going overweight on equities.

The risk-on rally which started post-March 2020 could further extend as India takes the road that will take it to double-digit growth.

Indian Inc. will see a similar momentum with respect to earnings and that will keep the bulls in the driver's seat.

“This coming growth phase for next few years provides some resemblance to the FY04-FY08 growth phase when Nifty-50 earnings grew at a CAGR of >20%. However, the only difference between the start of that phase and now is that in 2003 Nifty-50/BSE Sensex was trading at ~10x on Fw PE and now we are trading near 22x on Fw PE,” Rusmik Oza, Executive Vice President, Head of Fundamental Research at Kotak Securities told Moneycontrol.

“The re-rating game has already been played out this time so to that extent the upside in markets can only come from any earnings surprise in future. Investors should use any future market correction to increase allocation in equities with a 2 to 3-year view,” he said.

Oza further added that the key risk to Indian equities could be higher-than-expected inflation and higher-than-expected bond yields in the future. It is ideal to reduce exposure to defensives and gradually increase allocation towards economy driven stocks in the portfolio.

Ashutosh Tiwari, Head of Research, Equirus Securities told Moneycontrol that companies from infrastructure, capital goods, industrial, and financial sectors are likely to do well.

“Some of the stocks that we like are ICICI Bank, Axis Bank, KNR Constructions, PNC Infra, HG Infra, Ahluwalia Contracts, ABB power Products Ltd, and KEC International,” he said.

In terms of sectors, banking, auto, chemicals, NBFCs, as well as technology are some of the sectors that will remain in focus.

“In the Auto space, we have gone underweight on 2 wheeler stocks and are currently overweight on CV and tractors. We continue to avoid most of the smaller PSU banks given persisting asset quality issues with is expected to become worse post the Covid-19 pandemic,” says Roy of Angel Broking.

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