Director, Trustline Securities, Vinay Kumar Gupta believes that Union Budget proposals, 2022-23, will provide a push to both affordable and rental housing ecosystems as well as bolster existing financial infrastructure so as to provide liquidity to stuck real estate projects. He expects the budget to focus on infrastructure in order to increase the employment potential of this sector.
If the pandemic does not create havoc on the budget day, Union Finance Minister Nirmala Sitharaman will most likely present her fourth budget on 1 February.
Last year, the government had announced various stimuli and these packages provided a much-awaited pathway for a strong recovery but also resulted in soaring inflation. The US Federal Reserve already signalled a hike in interest rates and the RBI may well be contemplating hiking rates and tightening liquidity from the financial system.
With increasing Covid-19 cases due to the Omicron variant of the China-origin coronavirus, the Indian economy is expected to go through a bumpy ride in the foreseeable future. As lockdowns and restrictions are imposed off and on, the real estate sector expects the government to increase the capital outlay in this budget.
The hospitality sector is seeking lower taxes and incentives in terms of offering interest-free loans, subsidies and reduction in tax rates. In the budget, Sitharaman may make some announcements on education, Gupta feels. The union government could provide tax relief for Covid patients and their families and more deductions for the expenses on medical treatment, he says.
The insurance industry wants GST on the health insurance to be brought down to the 5% slab from the existing 18% slab and, apart from that, micro-insurance and sachet products need to be exempted from GST. Allocation in the budget is likely to be more for the highways authority from the central exchequer. Gupta, therefore, is urging the government to push its disinvestment agenda with full force so that the government should have sufficient liquidity to support and sustain this massive capital expenditure, push consumption demand and restore confidence in the banking system.
Indian equities have delivered stellar returns of around 32% from January to October this year in FY21 on account of the favourable macroeconomic environment, the government and central bank’s policy stimulus, strong corporate earnings and inflows from retails and institutional investors, Gupta says. These factors have helped Indian stock markets to outperform its peers. But as the year ended, the tide turned against the Indian equities. As a result, Indian markets have already corrected 8-9% from its all-time highs from October to mid-December.
Aggravating the third wave of Covid-19 will be the hawkish policies of the US Fed. The market is hence bracing for interest rate hikes and on the brink of some short-term softness. So a key question is whether investors should run away or invest more amid correction, Gupta poses. Amid the turmoil in the financial markets, there are certain pivotal events to look out for. First and foremost, how contagious is this new variant of Covid, a tapering one, rather a pace of tapering from the US Fed and other central banks.
The third major event in this line would be the upcoming budget for FY23. Thereafter, all eyes on what monsoon has for us in store.
From a medium to the long-term viewpoint, the current correction along with increased corporate earnings in upcoming quarters would give a good platform for better future returns. From a top-down perspective, we can bet on export-oriented sectors ranging from technology to chemicals. Recovery from the pandemic could benefit sectors like travel, hospitality etc. On the industrial front, companies with order book visibility, lean balance sheets with minimum leverage, and companies gaining from Atmanirbhar Bharat and PLI schemes should be on the radar. Riding on recovery, digitisation and a better asset quality mix would lead financials to manage the pressure on their interest margins. The unprecedented demand for digitisation and the gradual easing of talent shortage, robust order book augur well for technology players.
China+1 policy, diversification of supply chain and strong domestic demand will be highly beneficial for the chemical industry story. Increasing healthcare expenditure and rising domestic and export demand will keep the pharmaceutical growth trajectory on track, reductions in excise duty and state value-added tax on petrol and diesel would also support consumption demand. Disinvestment in PSUs space would be a value unlocking proposition.
Overall, Gupta is not expecting any major negative earnings impact on Nifty in the next couple of years, as the two heavyweight sectors – namely financials and technology look fine. From the above discussion, it is crystal clear that the long-term growth prospects of the Indian equities are still promising. It is recommended unequivocally that investors should use this opportunity to buy on dip strong fundamental stocks at reasonable pricing.
Investors may, on the basis of the above assessment, like to buy shares of Wipro, HCL Technologies, Tech Mahindra, HDFC Bank, ICICI Bank, KPR Mills, Fineotex Chemical, Aarti Industries, Tata Power, Olectra Greentech, KNR Construction and PNC Infratech etc.