Expert View: Budget 2024 Likely to Not Impact Any Specific Sector Significantly, Says Trupti Agrawal of WhiteOak Capital

Trupti AgrawalFund Manager- Shares in WhiteOak Capital The board believes that the 2024 budget is unlikely to be a dealbreaker for any particular sector. It should be seen as a continuation of previous years’ budgets, with broad themes focusing on infrastructure upgrades and higher allocations for housing, sanitation and green energy. In an interview with Mint, Agrawal shared her views on the budget expectations and market outlook.

Edited excerpts:

What is the outlook for the Indian stock market for the rest of the year? What are the key challenges that lie ahead?

We have always believed that it is impossible to predict market trends in the very short term, just as it is impossible to predict them by flipping a coin.

Over the long term, markets around the world tend to generate returns roughly in line with the nominal GDP growth rate plus the dividend yield.

We expect India’s nominal GDP growth rate to hover in the low double-digits going forward and have similar expectations for market returns in rupee terms.

India is such an exciting market because it offers the greatest alpha-generating potential of any other major equity market in the world.

While there are significant opportunities across the market cap spectrum, India has diverse mid-cap and small-cap segments that are relatively less researched and therefore less efficient, creating greater potential for alpha generation.

The most significant challenges in the near future include uncertainty related to the evolving global geopolitical situation, rapid changes in world markets and a sharp increase in oil prices.

Also Read: Expert View: Optimism is over the top, consider reducing exposure to mid- and small-caps, says Vaibhav Porwal of Dezerv

How might Budget 2024 impact the market? What do you think the market has discounted?

Recent budgets have emphasised sustainable economic growth while demonstrating policy continuity by emphasising public investment, making it easier to do business and boosting exports and manufacturing.

The consensus view is that the NDA coalition parties are more in agreement on most economic and governance policies, indicating a continuity in the policy framework and a pro-growth agenda similar to that of the past decade.

The budget is likely to be characterized by (1) continued growth in capital expenditure, (2) targeted increases in revenue expenditure to support various core central social sector programs, and (3) a generally stable tax structure with a continued emphasis on fiscal discipline.

Also read: Expert View: Market Outlook Is Promising; Positive for Manufacturing, Capital Goods and Exports, Says Dikshit Mittal of LIC MF

Which sectors can receive support from the 2024 budget?

The budget is unlikely to be a deciding factor for any particular sector.

It should most likely be seen as a continuation of previous years’ budgets, with a broad focus on infrastructure modernisation and greater funding for housing, sanitation and green energy.

There are also expectations of a greater focus on social sector programs, which could be sentimentally positive for consumer-facing sectors. India is benefiting from several secular headwinds.

There are potential growth opportunities over multiple decades as per capita incomes rise, creating inflection points in various categories where India is at the lower end of the consumption curve.

Moreover, the country is witnessing rapid digitalisation of services, supported by increasing internet penetration and formalisation, as well as key ongoing structural reforms.

The government is taking steps to boost domestic production and at the same time modernize the country’s infrastructure, which is effectively helped by the banking system, which is in the best condition in over a decade.

There is also a strong focus on structural reforms, which are likely to support favourable economic growth and productivity dynamics.

There are many sectors that will benefit from the above enablers. It is therefore important not to overemphasize the budget-related themes but focus on the structural enablers that will support India’s economic growth in the long term.

Overall, given the financial capacity of the government, the Union Budget for fiscal year 2025 can be expected to be balanced and largely responsive to the needs of various stakeholders.

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Earnings season is upon us. What do you expect it to look like overall?

The fiscal year 2024 reporting season ended with a positive surprise, translating into a 20 percent year-over-year (YoY) profit increase for the full year.

In line with consensus expectations, earnings growth in Q1 FY25 is likely to be moderate at 8-10% year-on-year.

Most sectors are likely to see moderate growth, with the consumer sector continuing to face some headwinds while capex-focused sectors are likely to see strong performance in most cases.

Banks are expected to see decent lending growth, but may struggle with margins.

Information technology services could see seasonal growth and higher deal volume, while the pharmaceutical sector is likely to continue to stabilize in U.S. business.

The market is likely to focus more on the outlook and commentary for these sectors as positive earnings news may already be priced in for many sectors.

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Revenue growth in fiscal 2025 is expected to improve moderately compared to fiscal 2024, driven by an increase in large takeout transactions and stability in discretionary spending.

While customer decision-making timelines continue to be extended due to stringent return on investment (ROI) constraints, transaction volumes appear to be stable, driven by customer cost optimization initiatives and improved conversions compared to last year.

Economic growth will gradually improve as discretionary spending normalizes at moderate levels.

How do you recommend playing the banking sector? What are the prospects for the sector?

Financial services remain a long-term structural theme in India, given the extent of under-penetration in the market compared to the developed world and several other emerging markets.

The industry is a combination of several heterogeneous but interconnected sub-sectors (such as banks, non-bank financial services firms, mutual funds, insurance, financial technology, stockbrokers, wealth management firms, etc.), many of which are expected to grow faster than the overall economy in the long term.

The financial services sector in India is changing rapidly and is benefiting greatly from the digital public infrastructure created by the government.

Considering that financial services also exist outside India’s borders, the team concluded that India has one of the most advanced and developed financial services systems, both in terms of governance and regulation.

We believe that the Indian financial system is on par with developed countries and among the best among emerging markets.

The banking sector is seeing dynamic credit growth, improving deposit creation trends, high asset quality and healthy return rates.

The continued poor performance of private banks over the past few years, despite achieving high return on equity (ROE), has made their valuations attractive in the context of their historical multiples as well as compared to other opportunities in the market.

What sectors are worth investing in over the next year or two?

At WhiteOak, our investment philosophy is based on the belief that great returns are achieved over the long term by investing in great companies at attractive valuations.

For a company to be considered excellent, it should meet the following criteria: (a) have a higher return on additional capital, (b) be scalable, and (c) be well managed in terms of goal execution and corporate governance.

Our team is very focused on stock selection. We don’t make thematic or sector decisions from above because they carry risks that we don’t believe enhance returns.

With this in mind, given our philosophy, there are certain sectors where a team can find more attractive growth opportunities compared to other sectors, looking from a grassroots perspective.

Currently, the team sees more growth opportunities in the private sector, finance, healthcare, specialty chemicals, information technology services, industrials and some consumer discretionary industries.

India’s macroeconomic fundamentals and growth story remain strong, and expectations are for profit growth in the low to mid-teens over the next few years.

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Reservation: The above opinions and recommendations are the opinions of the expert and not of Mint. We recommend that investors consult certified experts before making any investment decisions.