In an interview with ETMarkets, Sarin said: “Even staggering investments into those segments may not deliver good returns over the next 2-3 years at current levels,” Edited excerpts:
Q) Markets are trading near record highs as we approach the Interim Budget 2024 or the Vote on Account – what are your expectations?
A) The Interim Budget 2024 is the last budget before the general elections in May. Hence, this budget is likely to be more of a vote on account, and nothing big bang is expected.
We believe that the government will stick to its fiscal consolidation glide path, but overall this interim budget could most probably be a non-event from the market standpoint.
Q) What can derail the current bull rally on D-St – is it the fiscal deficit number or probably we see some profit booking post the event? Will the Fiscal Deficit number be closely tracked?
A) We believe the government is likely to stick to its fiscal deficit number. It will continue to stick to its fiscal consolidation glide path and is unlikely to deviate much.
We don’t think the market is expecting much out of the budget. The only trigger point for profit booking will be some negative announcement, which isn’t the base case currently.
Q) Given the fact that India’s mutual fund industry AUM-to-GDP ratio — which represents the penetration of mutual funds in the economy — is currently around 15% compared to 7-8% a decade ago – what are investors expecting from Interim Budget 2024?
A) The increase in penetration of mutual funds in the economy is a structural theme. We think it has no correlation with an event like the budget, and with the budget likely to be non-event, investor expectation is limited.Having said that, any negative news that impacts the mutual fund industry could have a near-term impact on investor sentiment.
Q) With Bonds in focus – do you see any tweaks coming in for bond investors or the segment to make it more attractive?
A) Some substantial measures were announced in relation to fixed-income markets last year. MLD lost their tax arbitrage and in the final finance bill, even debt mutual funds lost the tax arbitrage available to them.
Given these substantial changes, no major announcement is expected. Bond markets would of course be watching the fiscal deficit number, and any surprises could impact bond yields.
Q) There are a lot of expectations on making India more self-reliant given the fact that we are seeing most states organizing investor summits to attract industries across the world. How are you seeing this change? Will the Budget also address ease of doing business?
A) Over the years the government has worked toward improving ease of doing business. Most of these measures have been outside the budget, but generally, most budgets by the current government have supported ease of doing business. We expect that trend to continue.
Q) Which sectors are likely to remain in the limelight in the Budget 2024?
A) This government has been extremely focused on improving the infrastructure of the company. The outlay on Capex has been substantial. We believe the limelight in infrastructure development and caped will remain a key theme.
Q) Do you think we could see anything on Cryptos? We have already seen the SEC giving a go-ahead to Bitcoin ETF?
A) Highly unlikely. The government introduced a tax on crypto investments which in some way legitimized crypto investments. However, we don’t think the government would like to go further than this.
Q) Any divestment plans that the govt could lay out in the Interim Budget or a projection of Capex spending?
A) The current government has focused on disinvestments as a way to raise some money. We expect the government to continue looking at divestment.
Given the markets are also close to an all-time high the government could use this opportunity to divest some assets. As mentioned earlier Capex has been a key focus area for this government, we expect the same to continue in this budget.
Q) If someone wants to put Rs 10Lakh into equity markets – should the person wait for the Budget or deploy it now?
A) While we think the budget is not a key event for equity markets, we are worried about valuations, especially in the mid and small-cap segments.
We think investors looking to invest in large caps could deploy it gradually over the next 2-3 months but those looking to invest in mid and smallcap could wait for better entry points.
Even staggering investments into those segments may not deliver good returns over the next 2-3 years at current levels.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
