 "Siddhartha Khemka")
Budget 2024-25 is expected to be growth-oriented, with the announcement of some measures aimed at addressing the rural economy, says Siddhartha Khemka
Where are the markets headed in the next 3, 6, 12 months? Are most of the positives priced in at the current levels?
India currently enjoys excellent macroeconomic fundamentals, with a GDP growth of 8.2 per cent in FY24, inflation at approximately 5 per cent, and stable current account and fiscal deficits and currency. Corporate earnings are robust, and there is a focus on manufacturing, capital expenditure, and infrastructure creation, resulting in positive valuations.
One of the key drivers behind this outstanding performance is the increase in savings by retail investors, particularly in equities. India currently has a unique combination of size and growth, as India’s GDP is likely to exceed $4 trillion in FY25/26 and reach $8 trillion by FY34.
Additionally, the Nifty is currently trading at 21.7x FY25 price-to-earnings (P/E), which is just 7 per cent above the last 10-year average of 20.3x. Hence, we believe that there is still room for more upside over the next 6-12 months.
Your budget expectations? What happens if the budget is high on hopes and low on delivery? Can we expect a meaningful correction then?
Budget 2024-25 is expected to be growth-oriented, with the announcement of some measures aimed at addressing the rural economy. The broad emphasis on capital expenditure and investment-led growth is likely to continue, accompanied by measures to revive consumption.
We anticipate that the new government would maintain its tax and non-debt capital receipt projections as presented during the Interim Budget in February 2024. The Reserve Bank of India’s (RBI’s) transfer of Rs 2.11 trillion implies excess receipts of about Rs 1.5 trillion for FY25. The government is likely to strategically utilise the extra windfall from the RBI dividend to provide relief to the poor and middle class and to boost consumption ahead of the key state elections scheduled in October – November 2024.
The government plans to allocate additional revenue primarily towards reducing the fiscal deficit and funding various initiatives. An estimated Rs 300-400 billion could potentially lower the fiscal deficit to 5 per cent of GDP from the projected 5.1 per cent.
What are your expectations from the June 2024 quarter results of India Inc? Are there any sectors / stocks that can surprise positively / negatively?
In terms of earnings, the outlook remains optimistic. For Nifty, we expect sales and earnings before interest, taxes, depreciation and amortisation (Ebitda) to improve 6 per cent and 4 per cent year-on-year (Y-o-Y), respectively in the June quarter (Q1FY25). Ex-OMC’s, Ebitda of the Nifty is likely to grow 8 per cent Y-o-Y.
The Nifty-50 is expected to deliver 12 per cent earnings growth in FY25 over a high base of FY24 (+26 per cent Y-o-Y).
The overall earnings growth is anticipated to be driven by domestic cyclicals such as auto (+18 per cent Y-o-Y) and BFSI (+15 per cent Y-o-Y), with improved contributions from healthcare (+21 per cent Y-o-Y) and metals (+12 per cent Y-o-Y). The capital goods sector is projected to report strong earnings growth at 24 per cent Y-o-Y for the quarter.
The Real Estate (+37 per cent Y-o-Y) and Retail (+14 per cent Y-o-Y) sectors would report strong growth, while Consumers (+10 per cent Y-o-Y), and Technology (+6 per cent Y-o-Y) are anticipated to post moderate growth Y-o-Y.
Conversely, earnings growth is likely to be weighed down by global cyclicals, such as O&G (led by OMCs), which are anticipated to decline -36 per cent Y-o-Y, along with Cement (-15 per cent Y-o-Y) and Specialty Chemicals (-20 per cent Y-o-Y).
Do you believe the markets are currently overvalued? Which sectors appear to offer the best return potential, and which ones are showing signs of being overbought?
Nifty is currently trading at 21.7x FY25 P/E, which is just 7 per cent above the last 10-year average of 20.3x. Hence we believe that there is still room for more upside over the next 6-12 months. Overall, we maintain our positive view on the market and prefer financials, consumption, discretionary, autos, telecom, industrials, and real estate as our key investment themes.
What is an ideal portfolio mix you suggest between the large, mid, and small-caps?
With growth-oriented policies formed by the NDA government and increasing spending to develop infrastructure, India is expected to be the preferred choice of equity investors. While smaller companies are attractive to investors, current valuations leave limited room for upside.
Hence, we expect large-caps to outperform over the next 3-6 months. Hence, to benefit from the current market momentum while circumventing the volatility, we suggest a greater mix of large-cap with around 60-70 per cent of portfolio while suggesting around 30 per cent-40 per cent in midcap & small-caps.
First Published: Jul 17 2024 | 10:42 AM IST
