Trupti Agrawal, Fund Manager- Equity at WhiteOak Capital Management, believes that Budget 2024 is unlikely to have a significant impact on any specific sector. Instead, it should be viewed as a continuation of previous budgets, with a focus on infrastructure development, increased allocations for housing, sanitation, and green energy. In an interview with Mint, Agrawal shared her insights on Budget expectations and the market outlook.
Agrawal emphasized that predicting short-term market trends is challenging, similar to a coin flip. Over the long term, markets globally have historically delivered returns in line with nominal GDP growth rate plus dividend yield. In India, the nominal GDP growth rate is expected to be in the low double digits, reflecting the potential market return in rupee terms.
India’s market stands out for its high potential for generating alpha compared to other equity markets globally. While opportunities exist across market capitalizations, India’s mid and small-cap segments offer relatively less researched and more inefficient sectors, leading to greater alpha generation potential.
Near-term challenges for the market include uncertainties related to global geopolitical developments, sharp reversals in global markets, and spikes in oil prices. Looking ahead, the Budget is expected to focus on continued growth in capital expenditure, targeted increases in revenue expenditure for social sector schemes, and a stable tax structure with a focus on fiscal discipline.
The Budget is not expected to favor any specific sector significantly but will likely continue previous themes of infrastructure development, housing, sanitation, and green energy. Expectations also include a focus on social sector schemes, which could benefit consumer-oriented sectors sentimentally. India is experiencing several secular tailwinds, such as rising per capita incomes and digitalization, supported by ongoing structural reforms.
Various sectors are poised to benefit from these tailwinds, emphasizing the importance of focusing on long-term structural trends rather than short-term budget-related themes. The fiscal space available to the government suggests that the FY25 Union Budget is expected to be balanced, addressing various stakeholders’ needs.
Looking at the earnings season, FY24 ended with a positive surprise, resulting in 20% year-on-year earnings growth. Q1FY25 earnings growth is expected to moderate, with most sectors reporting modest growth. Banks may face margin headwinds, while IT services and pharma sectors are expected to show stability and growth.
In the IT sector, expectations are for revenue growth to improve moderately in FY25, driven by cost take-out deals and stability in discretionary spending. The banking sector is witnessing robust credit growth, strong asset quality performance, and attractive valuations, especially in private banks.
Overall, WhiteOak’s investment philosophy focuses on investing in great businesses at attractive valuations to earn outsized returns over time. Sectors such as private sector financials, healthcare, speciality chemicals, IT services, industrials, and certain consumer discretionary industries are currently offering attractive opportunities.
India’s macro fundamentals and growth story remain strong, with expectations of earnings growth in the low-to-mid teens over the next few years. Investors are advised to consult certified experts before making any investment decisions.