Harsha Upadhyaya of Kotak Mahindra Asset Management Company expects the government to focus on healthcare, infrastructure development and financial sector reforms in Budget 2021.
“Healthcare focus will revolve around expenditure on vaccination along with expansion of healthcare infrastructure in semi-urban/rural areas,” he said in an interview to Moneycontrol’s Sunil Shankar Matkar.
The President & CIO – Equity at Kotak AMC feels the Budget is likely to focus on two key growth engines, viz. social and physical infrastructure, while being mindful of the limited fiscal space.
Harsha, having over two decades of experience spread across equity research and fund management, continues to prefer large private sector banks over PSU banks, from a portfolio perspective.
Q) Few experts feel the Union Budget 2021 could be a historic one, especially after COVID-19 pandemic. Do you feel so? What are your expectations from the Budget and policy measures that could cheer markets?
Over the years, most of the long term policy reforms/ initiatives are being taken outside the budget. We could witness continuation of this trend. Having said that, we expect the Government to continue supporting its earlier policies/ focus areas by making further outlay in this budget too. The budget is likely to focus on two key growth engines, viz. social and physical infrastructure, while being mindful of the limited fiscal space. We expect the budget to strengthen the AtmaNirbhar Bharat vision and focus on health, physical infrastructure and financial sector along with rural India.
Q) Which sectors are likely to remain in focus in the Budget?
We expect the government to focus on healthcare, infrastructure development and financial sector reforms. Healthcare focus will revolve around expenditure on vaccination along with expansion of healthcare infrastructure in semi-urban/rural areas. Any available fiscal room is likely to get channelled into capital expenditure, specifically, roads, railways, housing, and rural/urban infrastructure. Financial sector reforms like setting up a ‘bad’ bank, creating an institutional framework for infrastructure financing could be part of the budget. Rural India is also expected to be in focus, especially through NREGA spending and support to agriculture.
Q: The RBI in its Financial Stability Report expressed concern about high potential NPAs of the banking system which may rise above 14 percent. Some experts feel PSU banks are likely to be under strain and the well capitalized large private sector banks are strong and are likely to gain from the woes of the PSU banks. Do you feel so? What is your view on the banking sector following the Financial Stability Report?
While the worst may be behind us, the recovery path is still somewhat uncertain. Given better handling of asset quality, adequate provisioning levels and sufficient capital adequacy, the larger amongst private sector banks may fare better than the state owned banks. Credit cost normalisation will be faster for large private sector banks. Hence, from a portfolio perspective, we continue to prefer large private sector banks over PSU Banks.
Q: The Indian equities traded at record highs now. Should one prepare for a bigger correction in coming weeks and what could be quantum of correction if it happens. Should one start buying if the correction takes place or should one let the market settle?
There has been visible recovery in domestic economy since COVID lows, which is also translating into strong business/profitability performance from companies across the spectrum. The earnings growth momentum witnessed in September 2020 quarter accelerated further in the December 2020 quarter. The market is also seeing strong liquidity conditions. While it is difficult to predict short term market movements, some choppiness at higher valuation levels cannot be ruled out. However, we continue to remain positive on medium-to-long term outlook for domestic equities.
Q: What is your view on global economy for 2021 as western world is still facing COVID-19 crisis and lockdown measures?
Parts of western world have had to deal with second/ third spikes in COVID cases. The jury is still out on the sustenance of recovery seen during last couple of quarters. We expect relatively more back-ended recovery in global economy depending on the vaccination drive and overall containment of infection rate.
Q: Do you think FPI money flow as well as FDI will continue into India in 2021 and will it be more than 2020, why?
The conditions seem favourable for continuation of foreign flows into the country even this year. However, global inflation levels and interest rate trends need to be watched closely to understand flows going forward.
Q: What are those key risks (domestic and global) one should keep a note of them, in the year ahead?
While COVID is less scary this year compared to previous year, containment across geographies is required for business confidence to improve and economy to gain further momentum. So, in that sense, we still need to track COVID scenario at least until vaccination covers larger population. With most markets having registered strong performance post COVID lows, the valuation risk is also something that one needs to keep in mind. Apart from this, global inflation trends will determine whether easy liquidity situation will continue or not.
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