In an interview with ETMarkets, Bahl said: “Government might provide more aid to MSMEs through schemes for supply chain development, manufacturing facilities and cheaper availability of loans,” Edited excerpts:
After a sharp selloff seen post-election results Indian equity markets quickly recouped losses and hit a fresh record high. What is fuelling the optimism?
India’s long-term growth have always been intact. The sharp selloff in the market on the election result day was predominantly a panic selloff by investors since the election results were not in line with the exit polls.
Before the elections results, the exit polls estimated Modi government to win with a high seat count. However, the actual election results were different from the exit poll outcome and hence the selloff.
With NDA forming the government for the 3rd time under the leadership of Mr. Modi has fuelled back the investor confidence and optimism for India’s long term structural growth story. What is your take on the Fed decision and possible rate trajectory? While the expectations on overall economic growth were unchanged, FED committee members increased their inflation forecast for 2024 and 2025 and hence in June 2024, Fed kept the interest rates unchanged at 5.50%.Earlier, it was projected that the Fed might cut the interest rate 3 times in both 2024 and 2025. However, amid higher inflation than expected, it is now expected that the Fed will cut interest rates only once in 2024 and may be at max 4 times in 2025.The main reason behind delays in rate cuts is the Fed’s target in achieving 2% inflation in the country. The Bureau of Labour Statistics (USA) reported that 12-month inflation was 3.3% in May 24 compared to 3.5% in April. The next big event that markets will track is the Final Budget 2024. What are your expectations from the big event?
The final budget is expected to be announced in the second half of July 2024. With the Government’s core focus on infrastructure development in the country, we can expect higher allocation and growth in key sectors like railway, defence, aviation, renewable energy, manufacturing and tourism.
These sectors have already seen a hike in allocation in the interim budget. Further, the government has its attention on MSMEs (Medium, Small & Micro Enterprises) which contribute nearly 30% to our GDP.
Government might provide more aid to MSMEs through schemes for supply chain development, manufacturing facilities and cheaper availability of loans.
We might also see some change in corporate tax rates along with lowering tax rates for certain categories of individuals to boost consumption.
How are FIIs looking at India in the Modi 3.0 era?
Off late, FIIs have been the net sellers in the markets largely driven by high volatility, election result uncertainty and better return opportunities at home / other world markets.
On the other hand, buying appetite of domestic institutional investors (DIIs) cushioned the downside.
However, with the Modi government now in its third consecutive term, there is renewed optimism that India is poised for strong growth in infrastructure development, employment, healthcare and other sectors in the coming years. As market stability improves, FIIs may consider reinvesting in India.
How should one play small & midcaps in Modi 3.0? There are mixed voice some say that large caps likely to do better while some are looking at moderate returns from broader markets. What are your views?
Choosing whether to invest in large cap, mid cap or small cap depends on an investor’s preference and risk appetite.
Investing in mid & small cap companies can give higher returns but are also volatile in nature whereas large cap companies might give moderate returns but are not as volatile as mid & small cap.
But on the overall note, Indian markets are expected to grow at a high rate following Indian economy’s growth story over the next few years.
Which sectors are on your buy list and sectors could see some profit-taking after the recent rally?
As I said earlier, sectors like manufacturing, defence, aviation, and renewable energy are expected to grow faster because the Government in its interim budget for FY24-25 has significantly increased funding for these sectors, offering opportunities for strong returns and profitability.
Allocation to ministries of defence, road transport & highways, railways and rural development increased by 32%, 201%, 237% and 57% respectively compared to allocation in the budget of FY21.
It is anticipated that the government’s increased focus and support for the aforesaid mentioned sectors will benefit the companies that are operating in these sectors.
We are almost through with the first half of 2024 – how do you see H22024 for India Inc. in terms of earnings?
India’s outlook for the second half of 2024 appears promising, with various indicators pointing to continued robust growth. Earlier this year, the International Monetary Fund (IMF) revised its growth estimate for the Indian economy for FY25 from 6.5% to 6.8%. Additionally, the Reserve Bank of India (RBI) has projected a growth rate of 7% for the same period.
The final budget, expected in the second half of late July 2024 will be crucial in determining the sectors that the government will prioritize which in turn will also determine India’s growth trajectory for H22024.
What is the biggest risk this bull market faces?
Over the past one-year, Indian markets have performed well with Nifty 50 rising ~25%. The biggest risk the bull market faces is that the investors tend to buy highly overvalued stocks, low quality stocks, stocks with big risk factors thinking about the probable price appreciation in near future due to continuing bull run in the market.
Rising prices give an impression to the investors that they have made the right decision which prevents them from selling highly overvalued stocks, low quality stocks or stocks with big risk factors.
Although the bull market is expected to continue, investors should be cautious about the stocks which are not very financially strong. Also, should check for stocks where the price has shot up without much of a change in the fundamentals.
Basis its own diligence, even in the bull market the investor should take a decision whether to stay invested or sell.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)