The government may not make big announcements in the coming Budget 2024 as it will be a Vote on Account before the Lok Sabha elections, says Yogesh Patil, Chief Investment Officer -Equity at LIC Mutual Fund. In an interview with Mint, Patil talked about the market’s performance in 2023 and the outlook. Edited excerpts:
What are your expectations from Budget 2024? Do you expect it to be a populist Budget ahead of elections?
The government has already announced many measures such as production-linked incentives (PLI) to propel economic growth.
We have seen robust growth in economic activity, increased tax collections and various macroeconomic indicators indicate better times ahead. Reforms announced so far have already built the base for the next leg of growth of our economy.
We do not expect the government to make big announcements in the Vote on Account due before the Lok Sabha elections.
The Finance Minister confirmed that the February 2024 Budget will solely be a Vote on Account due to the impending elections.
Nifty 50 is set to end the year with healthy gains. How do you assess the market’s performance in 2023?
We have seen a broad-based rally in the equity markets supported by domestic flows and buoyant investor participation.
We came across many positive developments throughout the year such as select corporate earnings upgrades, outcomes of three state elections, and benign commentary by the US Federal Reserve in the last review meet of the year.
Some of these were not factored in by the investors.
The stock returns in 2023 must be seen in light of relatively low participation by foreign investors, who are now coming back to India.
The Nifty 50 index did well, despite relatively muted performance by the banking and financial services (BFSI) sector which has the highest weight in the index.
If we compare the sector’s fundamentals such as asset quality with long-term averages, then the sector is in a much better shape now.
Credit growth is picking up and credit growth is generally 1.2 times the growth in nominal GDP. That can lead to the rerating of the sector.
Another important sector, IT- information technology, is at an interesting juncture. Clarity may emerge in growth in IT spending in the next quarter. We have a positive view of Indian equities.
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We see a remarkable rise in the number of retail investors. What does it mean for our market?
Retail investors’ participation has emerged as a strong force in the domestic markets and has reduced volatility, especially in those times when foreign institutional investors decided to redeem.
As our economy expands and income levels go up, more investors are likely to invest in equities directly and through mutual funds. It should add depth to our market.
Is the worst about inflation behind us? RBI in its last policy meeting kept inflation projection unchanged but also talked about the impact of over-tightening. How do you expect the growth-inflation trajectory to evolve in 2024?
Inflation is under control and structurally should go down, as major components of the commodity basket – prices of crude oil and metal – are down.
As inflation comes down, the central banks across the world should soon recalibrate monetary policy. As inflation and interest rates head southwards, it should be time for an uptick in growth.
Most positives are already on the table for the markets. Should we expect the ongoing rally to lose steam soon?
As we know, falling interest rates have a positive impact on equities. When the dollar index goes down, historically, we see money flowing into emerging markets including India.
So, we know that the flows can support stock prices. At the same time, there are segments of corporate India which have recently started reporting earnings growth.
Companies benefitting from defence manufacturing, exports on the back of China plus one strategy, increased private sector capex and railways ordering should report higher earnings growth in the calendar year 2024.
We may see more stock-specific movements than a broad-based rally driven by liquidity.
Also Read: Market Outlook: 6 key sectors investors should watch out for in 2024
The market appears to have factored in the BJP’s victory in the Lok Sabha elections. Moreover, rate cuts by the US Fed and the RBI may also have been discounted. Can these two events give a much-desired fillip to the market now?
While some investors do consider macroeconomic factors and allocate money, many more investors will wait till the corporate earnings show signs of growth. Markets are expected to be stock-specific going forward.
Investors will be focused on select sectors where earnings growth is expected. They are expected to allocate money to only those companies depicting growth in earnings.
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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.
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