Budget 2024: Finance Minister Nirmala Sitharaman is set to unveil the newly-elected Modi 3.0 government’s first Union Budget 2024 later this month. The upcoming budget is likely to be an extension of the interim budget presented earlier this year in February 2024.
In the current market scenario,
Edited excerpts from the interview:
1.How will the policy announcements of Budget 2024 impact stock markets amid the current bullish sentiments that have been propelling indices to fresh peaks? What are your major expectations from Modi 3.0’s first Union Budget?
Indian stock market has made multiple record high after the formation of NDA government at the center for the third time in a row in June 2024. Market seems to have appreciated the cabinet allocation by the newly formed government which actually saw no changes in the key ministries like finance, defense and home ministry, indicating supportive policy continuity.
Amid, strong domestic growth, improved corporate earnings and easing inflation the market is expecting well-balanced Union Budget aiming at fiscal consolidation on the one hand and with more allocation on capital expenditure boosting manufacturing (incl. PLI), infrastructure, agriculture and its allied services and rural sector on the other.
With the recently concluded Lok Sabha election results and upcoming verdicts of Budget 2024, will FII and FPI inflows rise in 2024? What kind of activity by foreign investors do you anticipate this year? Will the US Presidential elections in November impact the sentiment of FIIs/FPIs in any way?
Foreign investors have been selling for a while, but now the trend has been reversed. India’s strong economy is a big draw. Investors like stable economies with high growth, low inflation, and political stability. India is currently the world’s fastest-growing major economy. Including Indian bonds in a major global index and giving Indian stocks a bigger role in another index are positive signals to foreign investors.
These changes are expected to bring in billions of dollars. The country’s young population, growing cities, and ongoing infrastructure projects making it an attractive market for long-term investors. Overall, the outlook for FPI inflows into India is positive. The combination of a strong economy, supportive policies, and long-term growth prospects is likely to bring foreign investors back to India. Regarding the US presidential election, its global economic influence makes it a closely watched event, including in India.
A pro-business administration in the US often leads to bullish trends in emerging markets like India. Given the strategic, economic, and cultural ties between India and the US, India expects an administration that is open to negotiating mutually beneficial trade deals. Policies favoring foreign investments, especially in technology, infrastructure, and energy sectors, are crucial for India, making the US election rhetoric and policies significant for Indian investors.
Geopolitical risks arising from the Middle-East conflicts still impact commodity supplies, imports, and the trajectory of crude oil prices. Will Indian markets be resilient to external headwinds in 2024?
India’s vulnerability to rising oil prices stems from its reliance on imports, particularly from the Middle East. Geopolitical tensions there, along with the recent Russia-Ukraine conflict, have undeniably pushed crude oil prices up, contributing to inflationary pressures and a wider current account deficit. However, India is not without defenses.
Efforts to diversify oil import sources, build strategic petroleum reserves, and boost domestic production can all help mitigate the impact of price spikes. Additionally, India’s relatively strong macroeconomic fundamentals, including healthy GDP growth, moderate inflation, and a stable rupee, provide a buffer. The success of government policies in managing inflation and the deficit, along with the global economic climate, will ultimately determine India’s resilience in the face of fluctuating oil prices.
Going by the last US Fed policy verdict, Powell-led FOMC may cut interest rates in September. When do you think the RBI will adopt a similar approach this year, and how will markets react to rate cuts?
The Federal Reserve recently held interest rates steady, signaling the end of their tightening cycle and we are expecting an interest rate cut between September to November this year. The RBI might follow a similar approach. India’s economic growth story is currently fueled by government capital expenditure, but private investment remains stagnant.
This needs to change for sustainable growth. While inflation has subsided from its peak, rising commodity prices due to the “Red Sea crisis” threaten to reignite inflation concerns. The RBI faces a dilemma. Maintaining current rates or even raising them could control inflation but hinder growth. Conversely, a rate cut might boost consumption (which is currently sluggish) but raise concerns about small credit quality. A rate cut could benefit the stock market, especially sectors like infrastructure and real estate. However, it could also weaken the rupee by making Indian investments less attractive to foreign investors.
Amid the Q1FY25 earnings season, which sectors are you most positive about? Going forward, what are the stocks/sectors investors should focus on in 2024, to eye maximum returns?
Sectors positioned to benefit from a recovering economy could be prioritized. Banking and financial institutions stand to gain from loan growth, while consumer discretionary sectors like automobiles could see a rise in consumer spending. Going forward, sectors like FMCG (Fast Moving Consumer Goods), auto and auto components, banks, IT and healthcare are expected to be particularly attractive, offering investors’ diversification opportunities.
Do you think stock markets will generate similar returns in 2024 as last year? Where do you think Sensex and Nifty 50 levels will reach by the end of 2024?
India’s economic growth continues to impress compared to other major economies. This strong performance is driven by several factors, including reforms across various sectors, a young and growing population, and a shift in global supply chains. India’s economic fundamentals are also solid, with a narrowing trade deficit, high foreign exchange reserves, and a healthy fiscal position. This creates a favorable environment for continued economic expansion. Technology is playing an increasingly important role in India’s growth story.
Digitization is on the rise, and capital markets are maturing. Inclusion in global bond indexes further strengthens India’s appeal as a destination for investments. Investment activity is expected to pick up, particularly in the latter half of 2024, as global economic conditions improve. Here, investors need to stay vigilant. Economic data, central bank policies, and geopolitical developments can all significantly impact the direction of the markets. However, with strong earnings growth, a long runway for further expansion, and improving capital efficiency, the Nifty and Sensex, could see an upward movement and would touch 26500 levels and 90000 levels.