Hemant Kanawala, Senior EVP & Head – Equity at Kotak Mahindra Life Insurance Company feels by discarding fiscal conservatism at a time when the economy needs public capex support, the government has done well to provide wings to growth.
“Budget has a clear emphasis on Atmanirbhar Bharat policy and revival of domestic growth. Banking, capital goods & engineering, cement and automobiles are some of the sectors that will benefit from the revival in the domestic economy,” he said in an interview to Moneycontrol’s Sunil Shankar Matkar.
Kanawala, who has over 20 years of experience in capital markets, cautioned that the markets are trading at relatively expensive valuation, hence return expectations should be in line with long-term earnings growth.
Edited Excerpt:-
Q) What is your take Union Budget 2021? How will you rate it out of 10?
A) The concern going into the Budget was that there will be an increase in tax liability and the government will remain fiscally conservative. Deviating from this predictable route, the Budget marks a definite change in the government’s policy approach as it begins to shift gears to enhance long-term growth potential through a mix of reforms and aggressive capital allocation. By discarding its fiscal conservatism at a time when the economy needs public capex support, the government has done well to provide wings to growth.
Q) What were the top announcements in the Budget according to you? Any disappointments?
A) Major thrust on capital expenditure, asset monetisation of infrastructure projects, the formation of asset restructuring and monitoring company, improved transparency in accounting by the inclusion of food subsidy and stability in direct taxes are the major surprises in the budget.
In order to support the economy, fiscal deficit has been increased to 6.8 percent in FY22 and a glide path has been provided to bring it down to 4.5 percent by FY26. This can potentially be inflationary and interest rate may rise.
Q) Which sector will benefit the most what are stocks that will in focus post Budget?
A) Budget has a clear emphasis on Atmanirbhar Bharat policy and revival of domestic growth. Banking, capital goods & engineering, cement and automobiles are some of the sectors that will benefit from the revival in the domestic economy. Continued emphasis on Atmanirbhar Bharat policy through announcement of production linked incentive schemes and rationalisation of import duties will help export oriented sectors like specialty chemicals, pharmaceuticals and auto ancillaries.
Q) What would be your investment strategy post-Budget and what is your advice to retail investors? What is your view on the market?
A) This is a growth-oriented Budget with some increase in the fiscal deficit. The consensus is expecting Nifty earnings growth of more than 50 percent from FY21 to FY23, which looks achievable. Hence, investors should have more favourable orientation towards equity compared to debt subject to individual risk appetite and liquidity requirement. However, one should note that the markets are trading at relatively expensive valuation on the back of this optimism. Hence, return expectations should be in line with long-term earnings growth.
Q) What should be the portfolio allocation in terms of sectors after the Budget? what sectors should be avoided?
A) As mentioned, the emphasis of the Budget is to revive growth and incentivise domestic manufacturing. Hence, our sector preference will be for domestic cyclical like banking, cement, capital goods & engineering and automobile and export-oriented sectors like specialty chemicals, pharmaceutical and auto ancillaries. There are no clear losers from the budget as most sectors benefit from revival in the domestic economy.
Q) Should one start focussing on the auto space after the Budget, scrappage policy and January sales data?
A) Automobile is one of the preferred sector to play revival in domestic economy. Automobile sector benefits from a revival in consumption through passenger vehicles and 2 wheelers, industrial activity through commercial vehicles, rural sector through tractors and export market through auto ancillaries. Hence, investors can choose which theme they are more positive on and invest accordingly.
Q) Should one stay more with mid and small-caps compared to largecaps post Budget?
A) One observation from the corporate earnings over the last three quarters post-pandemic is that larger companies are gaining market share in every sector. They are able to invest in tough times due to strength of their balance sheet. Hence, our preference will be to invest in sector leaders. Some of the sectors with high growth potential may be small today and hence leaders in them can be midcap companies.
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