Rupen Rajguru, Head Equity Investments and Strategy at Julius Baer India, shares his insights on the upcoming Interim Budget, market expectations, and the ongoing Q3 earnings season. With a keen eye on fiscal balances, social spending, and potential boosts for various sectors, Rajguru offers a comprehensive analysis of the current economic landscape.
Expectations from the Interim Budget 2024:
As 2024 marks an election year, the Interim Budget becomes a crucial precursor to the full-fledged Budget expected in July. Rajguru anticipates a focus on better fiscal balances, creating room for increased social spending. Furthermore, he predicts targeted incentives for the middle class and rural segments, encompassing measures like promoting a new income tax regime and supporting the housing sector.
Budgetary Measures Impacting Market Sentiment:
While major policy reforms might not be on the horizon for the Interim Budget, Rajguru highlights the significance of announcements related to the quality of spending. He emphasizes a preference for capital expenditure over revenue expenditure and the importance of fiscal discipline, with a roadmap aimed at reducing the fiscal deficit to 4.5% by FY26.
Short-Term Market Outlook:
Reflecting on the eventful year of 2023, Rajguru provides an optimistic view of the Indian equity markets. He identifies key drivers such as earnings growth, capital expenditure, and credit growth, stating that India is entering a phase where earnings growth is expected to surpass nominal GDP for the next few years.
Global Factors Influencing Market Dynamics:
Looking ahead to CY24, Rajguru anticipates a soft landing for the US, policy pivots with potential Fed rate cuts in H2CY24, and a stable USD. These factors are expected to benefit emerging markets like India, with a revival in Foreign Institutional Investor (FII) flows. Despite potential volatility in H1CY24, driven by uncertainties around the US economy and India’s general elections, Rajguru maintains a constructive stance.
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US Fed Rate Reduction: Timing and Market Impact:
Addressing the global scenario, Rajguru discusses the recent US Fed pivot and the expectations of an aggressive rate cut. While predicting a gradual reduction in rates starting May’24, he acknowledges that any deviation from market expectations could result in intermittent risk-off situations and increased volatility.
Impact of US Economic Slowdown on India:
Examining the global economic landscape, Rajguru notes a slowdown with ‘higher for longer’ interest rates affecting demand across the Western world. However, he projects a soft landing for the US economy rather than a recession, highlighting the potential positive impact on markets. Potential risks, including restrictive US policies, are acknowledged, but overall, the outlook remains constructive.
Q3 Earnings Analysis: Sectors in Focus:
Providing a snapshot of the ongoing Q3FY24 earnings season, Rajguru delves into various sectors. Financials and consumption face some strain, but the overall picture is positive. Banks show steady credit growth, while the consumption sector contends with weak volume growth, especially in rural markets. The IT sector beats muted expectations, and cement companies post healthy numbers.
Sectoral Upgrades/Downgrades:
Rajguru assesses different sectors, highlighting areas of improvement and potential challenges. While the healthcare sector benefits from an improved pricing environment in the US, industrial and cement sectors thrive on robust order inflows and improved profitability. Oil marketing companies surprise with better-than-expected numbers, despite some weaknesses.
Conclusion: Navigating Opportunities and Risks:
In conclusion, Rajguru reiterates the optimistic outlook for India’s economic trajectory, emphasizing the structural story of earnings growth, capex, and credit growth. He acknowledges potential challenges such as global economic shifts and geopolitical factors but remains confident in the resilience of the Indian equity markets.
Disclaimer:
The views and recommendations presented are those of Rupen Rajguru and not necessarily endorsed by Mint. Investors are advised to consult certified experts before making any investment decisions.
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