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Expect manufacturing, infra boost in budget 2024: Alekh Yadav of Sanctum Wealth

Jun 4, 2024

Alekh Yadav, Head of Investment Products at Sanctum Wealth, believes that the forthcoming Vote on Account – Interim Budget 2024 won’t be eventful. Nonetheless, it is anticipated that India would continue to place a strong focus on capital expenditure, or capex.

Although Yadav stated that the government will adhere to its its fiscal consolidation glide path, this interim budget may not have much of an impact on the market overall.

In an interview with Mint, Yadav spoke extensively on key indicators for the market in 2024, Indian stock market trends, global economy, foreign institutional investor (FII) activity, and 2024 IPO market.

Edited Excerpts:

1. Could 2024 be the ninth consecutive year that the index returns in the positive given the impending events—two budget sessions, a major national election, and an election in the US? What does the stock market in India look like in 2024?

The ongoing streak of consecutive years with positive index returns marks the longest in the history of financial markets. This trend raises concerns that 2024 might witness a shift towards negative index returns. While much has been discussed about India’s economic resilience, as the country approaches elections this year, electoral outcomes do not seem to pose a significant risk. The current indications suggest a high likelihood of the incumbent party, the Bharatiya Janata Party (BJP), securing another term, ensuring policy continuity.

However, the primary threat could stem from global economic shocks. Historically, cycles of rate hikes have often been followed by recessions, albeit with varying time lags. Given that the recent rate hike in the United States (US) ranks among the steepest in its history, there is a considerable possibility that the US might be on the verge of entering a recession, if it is not already there.

2. Will the Indian market be the sweet spot in the global economy in 2024?

Even in the event of a global economic slowdown, India could be relatively resilient. The country is currently reaping the rewards of significant structural reforms implemented by the government in recent years, such as the IBC, RERA, and the ongoing process of digitalisation. These reforms have contributed to enhancing India’s economic robustness.

Furthermore, India’s external indicators are also favourable. With comfortable crude oil prices, a stable rupee, and an improved current account deficit, the external economic factors are aligned positively. This combination of domestic structural reforms and favourable external conditions positions India to navigate potential challenges arising from a global economic slowdown with greater resilience.

3. The next significant event that market participants will be looking at is the Vote on Account – Interim Budget 2024. Which sectors are most likely to stay in the spotlight during the interim budget?

We anticipate that the forthcoming Vote on Account is unlikely to be eventful, with any significant announcements being reserved for the main budget following the upcoming elections. Despite the subdued nature of the interim budget, India’s unwavering emphasis on capital expenditure (Capex) is expected to persist. Consequently, the sectors that are likely to garner attention during this interim period are infrastructure, manufacturing, and their associated industries.

4. What are your key expectations from interim budget 2024?

We believe the government will stick to its fiscal consolidation glide path, but overall, this interim budget could most likely be a non-event from a market standpoint.

5. In this interim budget, what are the main themes that investors should be watching?

Key themes are likely to remain the same. Fiscal consolidation, a focus on capital expenditure, make in India, and improving ease of doing business.

6. Could you provide a brief list of key indicators for the market to look out for in 2024, and how you expect the market will respond to these indicators?

Some of the key indicators that could impact the markets include:

Global Inflation: Just as in the previous year, inflation is poised to be a significant market driver in the current year. While inflation has moderated considerably, the crucial question remains: Is it sufficiently low for central banks to contemplate rate cuts? Any uptick in inflation could potentially exert a negative impact on the markets.

Interest Rates: Market expectations are leaning towards a rate cut by the Fed exceeding 1.25%, but the central bank is signalling a 0.75% reduction. Thus far, the Fed’s predictions have proven accurate, prompting the market to recalibrate its expectations. Even with rate cuts, interest rates are set to remain relatively high, potentially impacting the broader economy.

Corporate Earnings: While corporate earnings have provided support in recent quarters, revenue growth has been somewhat subdued, with margin expansion driving earnings growth. Anticipating no further margin expansion, the focus shifts to the necessity of revenue growth. The trajectory of earnings is pivotal, especially given the already elevated valuations in the market.

Elections: With over half of the global population scheduled to vote this year, market dynamics may be influenced by electoral outcomes. The impact will vary depending on specific election results and their implications for economic policies.

Geopolitical Risks: Although geopolitical risks are ever-present, ongoing conflicts in Europe, tensions in the Middle East, and recent issues in the Red Sea introduce a heightened level of potential risks that could significantly impact the markets.

In summary, global inflation and interest rates are likely to remain key indicators, with a crucial interplay between them. Additionally, the trajectory of corporate earnings and the outcomes of elections are some additional considerations. Geopolitical risks, acting as a wildcard, have the potential to introduce unforeseen challenges to market stability.

7. In 2024, the US Federal Reserve may decide to stop raising interest rates. What kind of FII activity do you anticipate for the Indian markets in 2024?

We believe the Fed’s current rate-hike cycle may be over. However, we expect the Fed to be on pause over the next few policy meetings before looking to cut. This is likely to support FII activity in India. However, the extent of FII activity is likely to be driven by the global risk to sentiment.

8. How do you see the 2024 IPO market?

The Indian IPO market in 2023 was very strong. The SME IPO in particular had a very good year in 2023. IPO markets tend to have a great correlation with how the market is doing in general. If the equity momentum continues, then the IPO market will remain robust; however, if we see any correction, IPO activity can stop very quickly.

– Alekh Yadav, Product Specialist

For more information, please visit www.sanctumwealth.com

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