Defense Stocks | Railways Stocks: ETMarkets Smart Talk: Defense, railways among top 6 sectors which will be in focus in Budget 2023: Sonam Srivastava
In an interview with ETMarkets, Srivastava said: “Most importantly instead of going populist the Budget expected to continue to focus on post-Covid fiscal consolidation and focus on divestment and reduction of subsidies,” Edited excerpts:
Where do you see markets in 2023?
Coming on top of a historic rally in 2021, we had big hopes for 2022, but needless to say, it turned out to be one of the craziest years for investors.(Tax breaks, jobs or plan to beat China: What will Budget 2023 offer? Click to know)
From spectacular fails like the crypto crash, tech layoffs, inflation, and war, 2022 might not be a year to remember fondly.
Some of what happened in 2022 was foreseeable, but we had a fair share of the unexpected as well. Forgotten sectors made a last-minute comeback, and we learnt that we could lose money on good businesses if we overpay! It was a time to be dynamic and risk-averse.
The market is entering the new year with a consolidation. There are rising fears of a recession in the US and concerns about the overvaluation of Indian equities compared to emerging markets.
But still, I have a positive outlook for the Indian market as India still has the highest projections globally in terms of growth which justifies the high valuation we demand.
We do expect the January effect to come into play and we expect the budget-linked sectors to rally. So in 2023, while the Indian markets might get dented by the global recession, they will not drown.
Do you think the sectors that worked well in 2022 will continue to perform in 2023 as well?
The best-performing sectors for the last year were Banks, Consumer Discretionary including Autos and Capital Goods. The Indian economy coming out of the pandemic will remain resilient.
As inflation eases, many sectors will remain buoyant, especially domestic consumption, travel, and hospitality. Banks have come up strong with rising credit growth and much more robust balance sheets, and they will flourish in a rising interest rate environment.
With the budget in view, we are excited about the infrastructure segment, especially stocks linked to defence and railways.
There are other industries like sugar, fertilizers, textiles, and paper that are flourishing due to subsidy-linked announcements.
We are quite bullish in the capital goods space as well as private investment remains strong in India despite global volatility.
The government is incentivizing domestic manufacturing and defence indigenization and the private sector is seeing CAPEX in the energy transformation, emerging tech, and warehousing.
Where do you see rupee headed in the year 2023?
The rupee fell from ₹74.46 to ₹82.71 during the last year. The currency hit multiple lows in 2022 owing to geopolitical tensions between Russia and Ukraine leading to a steep rise in inflation and aggressive monetary tightening across the globe.
We see the year 2023 to be a year of recovery for the Rupee. There are multiple reasons that give us that confidence like the strength of the Indian economy compared to the global peers, as the global market growth declines, crude will we available for cheap thus favouring our exports, additionally the RBI has strong forex reserves to support the currency.
Few headwinds which India has to battle in the first 6 months of 2023?
Indian market needs to justify its valuation and continue to attract FII flow. The robustness of industry output, capital expenditure, and budgetary plans will decide this.
Global factors like recession fears, geopolitical risks, and rising coronavirus cases will be some of the issues that we will have to tackle.
The primary narrative will come from global inflation data initially which decides the rate of interest rate hikes even though after a few months global growth slowdown might become one of the concerns for India’s economy.
What are your expectations from Budget 2023?
Budget 2023 is likely to continue to focus on capital expenditure as a growth driver and give an impetus to manufacturing while continuing with the post-pandemic fiscal consolidation.
The finance minister will try to boost capital expenditure further from the current 2.9% of GDP to nearly 3.5%. She might also rationalise personal income-tax rates to lift demand. The focus will also be to improve the ease of doing business.
The Budget is expected to continue the focus on domestic manufacturing revival and PLI schemes for labor-intensive sectors are likely.
Most importantly instead of going populist the Budget is expected to continue to focus on post-Covid fiscal consolidation and focus on divestment and reduction of subsidies.
Which sectors could remain in the spotlight in the Budget 2023 which is also the last Budget before India goes to poll in 2024?
With the budget coming in the beginning of 2023, the sectors that the government is looking to focus on – 1) manufacturing, 2) capital goods, 3) defence, 4) sustainability, 5) railways, 6) public sector banks are already seeing fresh investments. We expect these sectors to continue to be in the spotlight.
The theme of chasing stocks getting government Capex and incentives from the PLI scheme will outperform in the run-up to the budget.
Even though this is the last budget before elections we might not see the government go populist but instead focus on fiscal consolidation in light of global volatility.
Do you see interest rates peak out in 2023?
2022 saw repeated large rate hikes but 2023 is expected to be different, with the market expecting only a few rate hikes, and interest rates are likely to remain stable for most of 2023 or even fall.
The market sees a good chance that March will be his last Fed rate hike of this rate cycle. However, this will require continued positive news about lower inflation and a possible slowdown in the labor market. Unfortunately, the main factor driving interest rates to change is the US recession.
As the rates stabilise, it will lead to recovery in the currency market as the run towards the US dollar ends. The equity markets could also get a breather on the sentiment front if rates stabilize but the risk of the recession still remains strong.
What were your key learnings from 2022 which will come in handy in 2023 as well?
Here are the key lessons I’ve learned as a quant investor since 2022:
Diversification matters: One of his key lessons of the year is the importance of diversification in investing. Diversifying your portfolio across different asset classes, industries and geographies can reduce the impact of specific events on your overall portfolio.
Prepare for the unexpected: Another lesson learned this year is the importance of being prepared for the unexpected. Proactive risk management and planning help manage unexpected market events and minimize their impact on portfolios.
Keep Risk in Mind: Risk management is an important aspect of any investment strategy, especially quantitative strategies. It is very important to monitor and manage the market and operational risks of your portfolio.
Stay up to date: Ultimately, it’s important to stay up to date on market trends and changes in the economic environment. This helps us find new opportunities and adjust our investment strategies as needed.
In terms of primary markets – after what happened in 2022 with New Age companies do you think future listings will also see similar enthusiasm from retail community?
At least 51 companies have received final observations from market regulators to list in 2023, according to
data, and their draft prospectuses are still valid. These issues could raise more than Rs 50,000.
These names include Allied Blenders and Distillers, Snapdeal, Yatra Online, Utkarsha Small Finance Bank, Biba Fashion, Navi.
But will 2023 be a stronger year for IPOs than 2022? The answer to this could very much depend on the overall mood in the capital markets.
Against the backdrop of increased volatility, the sentiment might be muted, especially in the first half of this year and there will be excessive scrutiny on valuations and profitability as we are seeing right now in the case of Mamaearth.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)