Edited by Deepali Verma
Rupen Rajguru of Julius Baer India, Head Equity Investments and Strategy, expects the Interim Budget to showcase better fiscal balances, creating space for higher social spending. He further expects the government to announce sops for the middle class, that is, promote new income tax regime, housing, etc as well as rural segments.
Expectations from the Interim Budget 2024 and the sectors likely to get the boost:
As 2024 is an election year, the finance minister will be presenting the Interim Budget or Vote on Account in February, while the complete Budget is expected in July once the new government is formed.
One can expect the government’s emphasis on public infrastructure to promote capex growth to continue with a stress on growing the domestic manufacturing base, which could involve tweaking.
Budgetary measures to boost market sentiment:
The Budget will provide an opportunity for the government to underscore its economic accomplishments in the lead-up to the 2024 General Elections.
Glancing from the market perspective, announcements regarding the quality of spending, that is, focus on capital expenditure over revenue expenditure, and fiscal discipline i.e roadmap towards reducing the fiscal deficit to 4.5 per cent by FY26E will be advocated by the markets.
The expectations of the Markets on the Budget is to focus on (a) capex – which can have a positive multiplier effect and boost overall employment, and (b) rural recovery – as the rural sentiments/consumption had been suffering due to high inflation.
Short-term view of the market:
The calendar year 2023 (CY23) was quite an eventful year for the equity markets, where the Bharatiya markets delivered a return of nearly 20 per cent, and the small and midcaps (SMID) segment delivered over two times of the Nifty returns.
The structural story for Bharat is the same: Earnings + capex + credit growth. Bharat has made an entry into a phase wherein for the coming few years earnings growth will be greater than the nominal GDP.
After 23 per cent earnings CAGR over FY20-23, Nifty has registered 30 per cent earnings growth in the first half of the current financial year (H1FY24), a beat versus the expectation of 23 per cent.
Leading by BSFI and autos, consensus is building nearly 15 per cent EPS CAGR for FY23-26.
In CY24, there are expectations of a soft landing for the US, policy pivot which is the fed rate cuts from H2CY24 and a stable USD with a downward bias. These factors combine to benefit the emerging markets (EMs) with a revival in FII flows.
Beyond that, we expect Bharat’s macro to stay robust which is the highest GDP growth in any G20 nations, continued fiscal consolidation and curtailment in government debt/GDP, and a stable INR.
In totality, the Indian equity markets remain constructive, fueled by the continuation of momentum of the earnings cycle and strong domestic liquidity combined with the comeback of FPI flows.
Markets might be volatile in H1CY24 given that the debates persist around the US hard versus soft landing, the timing of the first rate cut by the Fed, and Bharat’s general elections outcome.
Impact of the US economy slowdown on Bharat:
The global economy is currently slowing down due to the burden of the ‘higher for longer’ interest rates which is dragging down demand/growth across the Western world.
There have been reports suggesting a slowdown in the US economy which is expected to be more like a soft landing as compared to a recession which was earlier feared.
The positive side is the continuing corporate earnings momentum as well as the reversal of the rate cycle are expected to be supportive for the markets.
A gradual recovery in earnings through 2024 in combination with a benign USD gives way for a constructive outlook on global equities and FPI flows, especially in developed markets.
A risk beyond the geopolitical factors, could emerge in the form of any restrictive policies ( for example, as increased tariffs) implemented by the US to facilitate the promotion of domestic manufacturing, which could distort global trade.
Expectations from the Q3 earnings of Bharatiya firms
Still being placed in the early days of the Q3FY24 earnings season, some sectors such as financials and consumption have seen some strain, the overall earnings picture is expected to be largely in place.
The Banks noted a steady credit growth as well as decent asset quality, some pressure points emerged in the form of sequential pressure on NIMs and deposit growth.
The consumption sector is noting a weak volume growth, especially in the rural markets, although benign input costs are aiding margin improvement.
Cement companies have made for healthy numbers with an improvement in profitability (EBITDA/ton) during the course of benign input costs and decent improvement in volumes.
The healthcare sector is attracting increased support from an improved pricing environment in the US, whereas the industrial sector, on the other hand, is benefiting from the robust order inflows and order book.
Further, the oil marketing companies (OMCs) have turned in better-than-expected numbers on robust inventory gains despite some weakness in the GRMs.
In conclusion, the earnings season is largely progressing in line with expectations, with the estimates for the current year and next year expected to be maintained.
