Gaurav Dua, SVP – Head Capital Market Strategy & Investments at Sharekhan by BNP Paribas, is of the view that the key areas of focus in Budget could be infrastructure development, strengthening healthcare capabilities, and the announcement of incentives to support other high employment generating sectors.
Dua, who has about 20 years of experience in the capital market, said that the market is anticipating a continued strong recovery in the economy and businesses in the year 2021 while the macro environment is expected to also remain favorable globally.
Here are edited excerpts from his interview with Moneycontrol’s Kshitij Anand:
Q) What are your big expectations from the Budget 2021? The Finance Minister has already fueled expectations of a blockbuster Budget – something which is not seen in the last 100 years?
A) Given the backdrop of COVID-19 led disruption in the economy, the Union Budget is expected to come up with measures to soothe the pain. There is a need for countercyclical measures to increase public expenditure to support economic recovery.
Hence, the key areas of focus could be infrastructure development, strengthening healthcare capabilities, and the announcement of incentives to support other high employment generating sectors.
Within the financial sector, the government is expected to create dedicated institutions for infra financing and infuse capital in PSU banks to help kick start the economy.
Q) Equity markets paint a very rosy picture of the economy and the state of affairs which might not be the true reflections of what’s going on. Does 50,000 scare you as a fund manager or someone who is part of capital market for decades?
A) Valuations are not cheap anymore. Markets are anticipating a continued strong recovery in the economy and businesses in year 2021 while the macro environment is expected to also remain favourable globally.
The thesis could get tested in H1 of this year. The pent-up consumer demand could moderate and an increase in public expenditure would be required to support the pace of the economic recovery.
However, we remain constructive on equities in the medium-term and would look at correction as an opportunity to accumulate quality companies.
That’s because the set-up is favourable for the start of a new business cycle and the earnings growth trajectory could be much better than anticipated over the next few years.
Q) The year 2020 was a year of reset on all counts and the way we invest has also changed. We saw the entry of retail investors. About 10 mn demat accounts were opened at a time when human survival was in question. Do you think the retail party will continue and the big business will come from Tier 1 and Tier II cities?
A) The surge in retail interest in the equity market was driven by a number of factors like time of hand during the lockdown, sub-optimal returns in other asset classes such as fixed income, bank deposits, and real estate.
Q) How are you picking stocks amid record highs? More than 400 stocks are hitting record highs on the BSE almost on a daily basis. What are the parameters which one should analyse?
A) Since the past couple of months, we have been advocating shifting part of the allocation from growth stocks to value picks.
The strategy has worked well with some of the value picks like L&T, Bharti Airtel, BPCL, SBI, GAIL, M&M, CESC have outperformed with healthy gains in the past few months.
We advise continue with this strategy and keep some cash to tide through any volatility ahead.
Q) The other big question in front of investors is when to book profits? Is there any mantra which you would like to recommend to retail investors to follow?
A) In my earlier interactions also, we have highlighted the strategy to take home some profits rather than fully exit from the equity markets at the current junction.
Also, the strategy to shift partly away from high beta growth stocks to low beta value stocks is also part of the de-risking strategy for investors today.
Q) How is December quarter earnings likely to pan out for investors?
A) In Q3, we expect some of the cyclical sectors like cement and metals along with robust performance from IT services and healthcare sectors.
However, the aggregate growth in some of the heavyweight sectors like consumer goods and banking along with individual stocks like Reliance Industries could be tepid in Q3,
Q) Any pre-Budget picks which you would like to recommend to investors? And why?
A) Some of the pre-budget trading picks are: Ultratech Cements, L&T, SBI, Bharat Electronics, BPCL, Mahanagar Gas, and Century Plyboards.
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