By With the Budget 2024 set to be announced later today, market participants are on edge, eagerly anticipating the government’s plans for stimulating the economy. Aamar Deo Singh, Senior Vice President of Research at Angel One, believes the government might boost consumption by either reducing personal taxes or increasing spending on consumer-focused areas. Despite the current apprehension among investors about a potential market correction, Singh remains optimistic about the market’s short-term prospects.
Singh noted the importance of distinguishing between the Union Budget and the Interim Budget. The Union Budget, presented for the entire fiscal year, differs from the Interim Budget, which only covers a few months until a new government takes charge. On February 1st, 2024, the Finance Ministry presented a cautious Interim Budget for FY 2024-25, focusing on strategic directions and development plans for making India a “Viksit Bharat” by 2047.
The upcoming Union Budget, however, will be crucial as it is the first budget following the 2024 General Elections. With the BJP in power but without a clear majority, this budget is highly anticipated and is expected to focus on boosting consumption through measures like lowering personal taxes or increasing spending in key areas.
Infrastructure spending, rural demand revival, job creation, capital expenditure, and consumption are expected to be the focal points of the budget. Increased capital expenditure on infrastructure could benefit companies with strong government order pipelines.
The government is also likely to allocate more funds for rural schemes, affordable housing, and possibly introduce an interest subsidy scheme for urban housing, benefiting real estate companies and financial corporations. Additionally, there could be announcements aimed at bolstering the renewable energy sector to create a better domestic manufacturing ecosystem. Measures to boost consumption might include tax benefits or cuts for middle and lower-income individuals to enhance spending power.
As markets continue to hit record highs, with Sensex and Nifty trading at their highest levels, there is a cautious optimism among investors. The last major correction occurred in 2020 during the COVID-19 pandemic. Since then, markets have surged without significant corrections. Many market participants are now cautious, fearing an impending correction triggered by global or local events. While markets may continue their uptrend in the short term, Singh expects some corrections in the latter half of 2024, particularly around the US Presidential Elections in November.
The valuation of the Indian equity market is currently among the highest globally, second only to the US and Japan. This has raised concerns about whether current fundamentals support the observed growth. Since the COVID-19 market corrections, both Sensex and Nifty have surged sharply. The ongoing rally is largely liquidity-driven, and that is not expected to change in the immediate future. Singh advises investors to adopt a cautious approach at current levels.
Looking ahead, the benchmark indices have seen a 15-16% increase from recent lows in June, following the Lok Sabha election results. Historically, the benchmark indices have shown a compound annual growth rate of around 15% over the past two decades. This suggests that long-term investment perspectives are crucial, given the cyclical nature of markets. The second half of the year is expected to be eventful, with state elections and the US Presidential elections potentially impacting market fortunes. Nifty is nearing the 25,000 mark, and a significant move could occur post-Diwali.
For the remainder of 2024, Singh recommends that investors avoid risky bets, especially around the US Presidential Elections, which may cause volatile market swings. Factors such as the Israel-Gaza conflict, inflation trends, energy prices, and US Federal Reserve policies could also impact global markets. He advises investors to take a long-term perspective.
FPI inflows have been volatile in recent years but are expected to increase as global investors view India as a promising market for superior returns. In June, FPIs purchased Indian equities worth Rs 26,565 crore, marking the second-highest buying spree of 2024. Post-Budget, FPI inflows could rise further if the Budget aligns with investor expectations.
While small-cap and mid-cap equities have performed well over the last five years, Singh cautions that current valuations are high. This may lead to moderate performance and profit booking in the latter half of 2024. Investors should be selective in their approach.
Singh advises new investors to adopt a cautious yet prudent investment strategy, focusing on building a diversified portfolio. He emphasizes the importance of discipline and patience, recommending investing in tranches or through SIPs. Sticking to quality stocks and sector leaders is crucial for long-term wealth creation. New investors should avoid getting carried away by market euphoria and practice sound money-management principles.
