Revised estimate for the Gross Domestic Product (GDP) for FY2023-24 and the fiscal deficit are the two numbers that Puneet Sharma, president and CEO of Whitespace Alpha, will closely track in the interim budget on February 1.
A quant strategies expert with more than 15 years of experience, Sharma doesn’t expect finance minister Nirmala Sitharaman to spring a surprise nor does he expect something radical in the budget that comes ahead of the Lok Sabha elections.
Political stability with minimal fiscal profligacy is his success mantra for the Indian economy, Sharma tells Moneycontrol in an interview. Edited excerpts:
Which are the areas to focus on in the interim budget that Finance Minister Nirmala Sitharaman will present on February 1?
In the forthcoming speech by the Finance Minister, there are key areas to pay attention to. Specifically, we should closely examine the revised estimate for the Gross Domestic Product (GDP) growth of FY2023-24, providing insights into the economic trajectory. Additionally, the expected fiscal deficit for the financial year will be a crucial indicator, shedding light on the government's fiscal policies and management.
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Do you expect any negative surprise from the government in the interim budget that can hit the market sentiment?
With national elections set to take place in a few months, it's unlikely that the government will introduce significant measures that could adversely impact market sentiment. However, investors anticipating tax incentives or populist measures may not find them materialising in the budget, potentially leading to some disappointment.
Overall, while major negative surprises are not expected, it's essential for investors to align their expectations with the government's likely focus on stability rather than radical policy shifts during this interim period.
Do you believe IT services cycle will turn in the current year? Should one stay invested in the space?
The prospects of the IT services industry remain robust. The current cycle is influenced more by short-term uncertainties and client caution, driven in part by increased interest rates and investments in AI (artificial intelligence). The industry is poised for improved activity and growth once the central bank initiates interest rate reductions.
However, it's crucial to note that Gen AI may introduce disruptive changes to the industry. Historically, IT services companies have heavily relied on labour and maximising chargeability for resources. Going forward, companies that effectively navigate the intersection of technology and labour arbitrage will likely emerge as leaders in the sector.
Staying invested in the IT services space seems prudent, provided companies can adapt to the evolving landscape and leverage advancements in technology and workforce strategies.
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What is your take on corporate earnings season and management commentaries?
It has been a mixed bag in terms of Q3FY24 reporting. While the earnings report of banks was in line with market expectations, many of the banks have seen extreme volatility in their market caps. Across the board, banks faced challenges relating to higher deposits, lower NIMs and overall, a negative sentiment relating to future earnings. The largest bank in India, HDFC Bank, saw its shares fall approximately 14 percent post result announcement, while others banks such as Kotak Mahindra Bank, ICICI Bank and Axis Bank also saw wild swings in their share prices.
On the other hand, the IT companies reported earnings which were mostly lower than market expectations. However, the future outlook for majority of the companies seems to be improving, resulting in their share prices witnessing significant movements. For instance, TCS and Wipro saw their shares go up by approximately 6 percent and 13 percent, respectively, after the earning reports before falling back to pre-earnings levels. Infosys shares are up more than 10 percent since result announcement.
FMCG appears to be facing a tough time with inflation and higher interest rates leading to market contractions.
The diverse industry-specific drivers are evident both in earnings reports and management commentaries. Investors should carefully analyse these factors to make informed decisions amidst the complex landscape.
Which are the factors that helped you to believe in India story?
The robustness of India’s economy has been consistently demonstrated, especially in the recent few years through the tumultuous period of COVID-19, oil price rise, Ukraine-Russia war, rampant inflation in many developed countries, etc. Still, India is poised to be the fastest growing economy.
Further, the sheer headroom available for growth in India is an immensely attractive proposition for business which are investing heavily in the country. And with a stable government and consistency in regulations, the growth story for India should deliver significant gains for investors over the next decade for sure.
Just looking at the current per capita income, and stability in the political landscape with minimal fiscal profligacy is a recipe for success in the medium to long term.
Do you think the market is expecting four-six cuts in Fed rates in 2024?
As the saying goes, it's not over until the fat lady sings. Similarly, the equity markets won't fully factor in four-six cuts in the Fed funds rate until they materialise. The Fed Chairman has consistently exercised caution, refraining from providing any concrete indication of rate cuts. He has emphasised that rate adjustments will only be considered once inflation is fully under control.
However, for the Indian stock markets, the rate cuts might play a secondary role in the first half of 2024. The primary focus will likely be on political developments leading up to the national elections expected in May.
Do you see lot of opportunities in Index plus/Alpha funds?
Index plus strategies have beaten Nifty year-on-year by over 12 percent. Unfortunately, investors are unable to take exposure into these funds due to lack of awareness or a high entry barrier of Rs 1 crore, which is the minimum investment size.
Most of the stock-picking funds dive into midcaps and smallcaps, exposing themselves to wild market cap movements while still managing to underperform indices compared to Index Plus funds that smartly focus on the stability of largecaps, while outperforming them month-on-month using FnO (Futures and Options) strategies.
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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