Last week, despite initial volatility markets got recovered and welcomed the Union Budget 2024 with cheers by closing at new all-time highs. In the previous budget for FY23-24 a record capex of Rs 10 lakh crore and many other policies were announced, which have boosted the performance of several sectors and overall markets, as a result Indian equities have witnessed a strong rally in the last one year.
Data available from ACE Equity showed that the Indian equity index BSE Sensex has surged 23 percent in the past 12 months till July 26. While broader market benchmarks BSE MidCap and BSE SmallCap have outperformed the Sensex and gained 58 percent and 57 percent, respectively.
Besides sectoral benchmarks such as BSE PSU (gained 93 percent), BSE Realty index (rose 87 percent) and BSE Capital Goods index (surged 69 percent) were the top gainers in this rally.
In an interaction with Business Today, a veteran from stock markets, Aamar Deo Singh, Senior Vice-President of Research at Angel One, shared his insights on the likely impact of Union Budget for FY24-25, which sectors are expected to gain from it, how PSU’s will perform, where to invest after the budget, and more. Edited excerpts:
How do you see this Budget and what impact it would have on the economy?
Overall, the Budget has tried to address concerns about jobs, slump in demand and to tackle these issues higher provisions have been made to boost spending in the agri sector, affordable housing, skilling and providing incentives for employment generation. All these measures are aimed to ensure medium-term inclusive growth as a significant percentage of the population is facing hardships in their day-to-day life to alleviate their current situation.
Which sectors are expected to gain from the Budget?
With the government’s focus on job creation and revival of urban and rural demand, this Budget is expected to spur demand across sectors, with the FMCG, infrastructure, manufacturing, housing, agriculture and power to gain significantly on the back of higher allocations for these sectors. With higher allocation to the rural segment, an anticipated uptick in demand is expected going forward which could have a positive impact across many sectors.
What will be the Budget’s impact on the manufacturing sector, specifically PSUs?
Indian PSUs have emerged stronger over the past few years, on the back of strong growth numbers, be it power, energy, rail, defence, banks etc. and the turnaround in many of the PSUs have been nothing short of spectacular. Stronger balance sheets and sizeable orderbooks for the foreseeable future, bodes well for these companies. However, going forward, execution shall hold the key for future performance. At the same time, investor interest has been extremely favourable towards PSU stocks, which is reflected in many of the PSU stocks in the manufacturing sector and some have turned out to become multi-baggers. The Budget holds promise for several of these companies so the way forward looks exciting.
Profits for PSUs have surged in the last few years. What are the key factors that have transformed the PSUs and helped in increasing their profitability?
The government’s focus on infrastructure and the manufacturing sector has helped PSUs significantly in their transformation journey. Special stress on Railways and defence has also helped many of the related PSUs to deliver solid performance. The focus on Make-in-India also aided to this stellar growth. The thrust on infrastructure in terms of building of highways, power, ports and airports have also helped the PSU pack.
Do you think that the PSUs can maintain this profitability growth as we advance?
Maintaining any growth trajectory in excess of 20-25 percent is always challenging for any corporate and PSUs are no different. As the base becomes larger, generating higher returns becomes more difficult. Maintaining such high growth will only be possible as long as the global and domestic macros remain supportive and the interest rate cycle remains at the lower end to spur growth and sustain the current momentum.
Which sectors are still looking attractive in this bull market?
FMCG, IT, Pharma, Infra, housing are few sectors that remain attractive in this bull market. However, it is imperative that investors stay cautious at current levels as many stocks in these sectors are trading at higher valuations, which might not justify entry at current levels. But on any correction or in an SIP mode, it would still be fine to have a closer look at quality names in these sectors.
What are your expectations for the Indian equities and overall economy going ahead?
Indian equities and the overall economy are expected to perform well over the long-term, though markets could witness turbulent times going forward due to global factors as well as inflationary trends. Given the past historical returns of the benchmark indices, it can be observed that CAGR over the past two decades has been close to 14-15percent p.a. indicating that equities have outperformed most other asset classes. So, investors need to have a long-term perspective when entering the market, while at the same time, keep focus on quality names, and should also look at adding to positions in tranches rather than going all out, at the current levels.