Budget 2024: Masterclass for investors

The budget has been presented, markets have responded, and the dust has finally settled. But investors are still looking for answers. Should they maintain their current investment strategies or tread carefully? What should they buy and what should they avoid?

Mint in association with HDFC Securities organised a post-Budget masterclass with market experts – Deepak Jasani, Head of Retail Research at HDFC Securities, Unmesh Sharma, Head of Institutional Equities at HDFC Securities and Varun Lohchab, Head of Institutional Research at HDFC Securities to answer these questions and help investors chart a path forward.

Market Reactions and Post-Budget Impact

On Budget Day, we saw some initial negative reactions due to the hike in Capital Gains Tax and STT. But the fear was overcome very quickly. The market ended almost flat on that day and then the markets gradually rose. The hike in STT and Capital Gains Tax will not have a significant impact on retail investors unless they are active traders. And gradually even active traders will adjust to the new taxes.

However, Deepak Jasani feels that the markets are at a high. There could be some upside. But investors need to be “cautiously optimistic”. This is a good time for retail investors to review their asset allocation. They can diversify their holdings into other asset classes like gold, fixed income or real estate etc.

The question is: Will the budget lead to long-term changes in investment behaviour? Unmesh feels that in the long run, the 12.5% ​​LTCG tax rate seems odd — raising questions about future adjustments. While domestic mutual funds have clear tax rules, many foreign investors do not pay capital gains tax in their home countries. So, when comparing returns, Indian taxes may reduce their long-term appeal.

Decoding Government Priorities and Budget Impact on Growth Trajectory

Unmesh praised the government for its “commendable work on fiscal consolidation.” The fiscal deficit target of 4.9% was unexpected and impressive. “The government’s long-term priorities like education, skill development, infrastructure and private sector crowding are solid steps forward,” he said.

From an investor’s perspective, India is becoming increasingly attractive. Sovereign and corporate balance sheets are in great shape. The government is supporting the lower classes, ensuring that household balance sheets remain strong.

Unmesh believes the base for another round of earnings growth looks solid, making India a great place to invest. However, managing short-term volatility will be key to capitalizing on this potential.

Strategic Investment Insights: Navigating India’s Post-Budget Landscape

Varun Lohchab mentioned that over the last few years we have seen strong performance in the industrial, infrastructure, manufacturing and real estate sectors. Now it seems that the focus should shift to consumption-related sectors. With increased job creation and more money flowing through employment, consumption is expected to pick up.

Given this shift, Varun believes it is wise to rebalance portfolios. “Valuations in the industrial sector have risen sharply, so consumer sectors may be more attractive now. Investors can also keep an eye on new business models emerging as a result of the scaling of the workforce over the next decade,” he notes.

Talking about attractive sectors for investment, Deepak highlighted that, “Consumer goods are expected to benefit the most from the Budget, especially due to the rural and agriculture focus and employment incentives.”

The IT sector is showing signs of revival. Oil and gas stocks look good, while defence and railway stocks look overvalued to Deepak. He feels real estate may not do well in the short term and may consolidate for some time. According to him, the pharma sector looks good. But investors need to be specific about stocks.

Green energy remains a key topic, but electric vehicles have reached global penetration levels, so investing in this sector should be cautious. Hybrid vehicles, along with solar and wind power, also show promise.

According to Unmesh, “A key long-term theme to consider is the financialization of savings and insurance. Also, there’s been a bit more focus on rail than on roads, so rail companies could be worth looking at. And of course, the consumption theme is significant, especially as employment grows and jobs are created.”

Government Strategies and Policies for Inflation Management in India

Inflation is difficult to control in the short term because of the many factors that affect it. In India, monetary policy can only manage half of inflation, with fiscal policy taking care of the rest. The main item that has not been directly addressed in the budget is the minimum guaranteed price (MSP) of crops. The government is focusing on long-term solutions to inflation, such as improving crop insurance, irrigation, and direct benefit transfers.

Fuel prices are another key factor. The government has effectively minimized fuel subsidy, which has come down from lakhs of crores to several thousand crores. By keeping taxes high and better managing fuel prices, they are working towards structural control of inflation. Moreover, progress in green hydrogen and fuel indigenization is expected to further stabilize inflation, leaving the RBI to focus on its role in monetary policy.

Assessing India’s Resilience in the Face of Global Economic Dynamics

While India is increasingly connected to the global economy, it is not yet heavily dependent on global growth for its own economic performance. Unmesh stressed that inflation is coming down and we can expect possible rate cuts in the future. This could make global equity markets, including emerging markets like India, more attractive. However, the shift in investment could also favour debt or developed markets, which could impact how much capital flows into India. This is because while India is doing relatively well, it is currently expensive and global uncertainties are not yet factored in.

Final Words for Retail Investors

Given the recent budget, retail investors should periodically review and rebalance their portfolios. This will help ensure consistent returns and manage risk effectively. Long-term investors should remain invested, focusing on whether stock valuations are in line with earnings and avoiding short-term thematic investments. Long-term investors must maintain a well-diversified portfolio and avoid overexposure to any sector.

Given the relatively favourable market environment over the past few years, it may be prudent to turn to market research experts to develop a more strategic approach to medium- and long-term investments.