A booming primary market, upbeat equities, and a robust economic recovery have drawn all eyes on the government’s disinvestment and asset monetisation blueprint as the Union Budget comes closer.
With 22 firms listed for strategic sellp0ff, the government has started the process for 17 that inluclude the Life Insurance Corporation of India, Bharat Petroleum Corporation, Container Corporation of India, Shipping Corporation of India, BEML, Pawan Hans, Neelachal Ispat Nigam Limited, two public sector banks and one general insurance company.
“The course of the market will determined to a large extent by the way the government pursues its divestment policy to support the economic growth,” says Mohit Nigam, Head – PMS at Hem Securities.
The budget should also focus on merger of smaller banks to ensure better credit facility in the economy, Nigam shares at an interaction with Moneycontrol. Power is another area of concern, believes the finance professional, seasoned in the capital market with exposure to forex, equities, bonds and investment banking. “There must be 24-hour power for every individual for the economy to make real progress.”
Excerpts from the interaction:
The market rallied nearly 9 percent from its recent bottom. How do you see it?
The recent rally from the December bottom could be termed as a pre-budget rally. With the Budget FY23 scheduled within a month, momentum can be seen building across sectors. Historically, post-Budget weeks witness strong market movements on either side. The recent dip from the market lifetime high could be seen as a result of the initial panic due to the spread of Omicron and interest rate hike fears across the globe. However, it also offered a great opportunity to accumulate good stocks at better prices, including Budget specific stocks. In terms of valuation, we believe, there is still room for blockbuster gains on the back of strong earnings growth potential. However, the market might be shy of fresh highs before the Union Budget.
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What are your top five expectations from the budget?
Well, I have my wish list ready. Let’s take a look at what I expect from Finance Minister Nirmala Sitharaman on February 1.
First, due to global inflationary concerns, money would be the main tool to foster growth. With better-than-anticipated revenue receipts, especially customs and direct taxes, and relatively contained spending so far, there is room to maintain large fiscal accommodation. With a longer-term vision, we expect the start of fiscal consolidation in this budget.
Second, there should be the supportive schemes for agriculture, rural economy, micro, small and medium enterprises and social sectors.
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Third, we expect initiatives such as a corporate tax-rate cut, Atmanirbhar Bharat and production-linked investment schemes to continue, even if fresh measures for corporates are not introduced.
Fourth, support to laggard sectors such as hospitality or transportation should be done through easily accessible funding.
Fifth, the government is attempting to boost growth through investment, rather than consumption. This stance is likely to continue.
What are the sectors that the Budget should focus on?
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The focus of the government should be on the power sector to provide 24 hours power even to the last man as the world. The other focus would be merging of the smaller public banks to have better credit facilities in the economy.
Also focus should be on the automobile segment by pushing some policies for EV (electric vehicle) infrastructure and EV manufacturing so it can further improve the fiscal deficit due to crude imports. With the LIC public issue round the corner, there might be focus on the insurance sector as well to help insurance penetrate deeper into the population. There is a likelihood of significant announcements on infrastructure through the Rs 100-lakh-crore Gatishakti Yojana where the government aims to invest to propel the Indian economy to the $ 5-trillion mark.
Do you feel more focus should be on asset monetisation and divestment?
The asset monetisation plan is part of the disinvestment drive being led by the Centre. The divestment target for FY22 is unlikely to be met due to surge in COVID cases which may delay the process but we believe that the government will be focusing big on privatisation and asset monetisation and it is expected that in FY23 several significant and large-value transactions will go through.
Markets might look to track the government’s disinvestment and asset monetisation strategy going ahead to generate returns from that corner. The government is pursuing strategic sale in 22 firms, a process has started for 17 firms.
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Companies will start releasing their quarterly numbers next week. What are your broad expectations from the December quarter earnings and will it support the current market valuations?
Many sectors are expected to give good quarter numbers. The IT sector in particular is expected to deliver strong performance owing to a large number of positive deals happening in this space combined with an increase in demand from clients. Guidance by few firms on growth, incremental employment of two lakh employees by top five IT firms and Accenture numbers are encouraging.
Power and renewables sector is also expected to come out with good numbers. A lot of good work is happening on the green energy front and the rise of EV has definitely given this sector a major boost.
Sectors that are expected to face turbulence in terms of numbers can be auto and FMCG due to below-average seasonal sales. Real estate may get a little hit due to subdued December owing to new COVID variant which again forced companies to declare work from home. As far as valuations are concerned, they became attractive when we saw a time-wise correction in the middle of December.
Overall, the Indian equities market looks good and is expected to deliver handsome returns. At the same time, we should be prepared for a justified increase in the market with reasonable expectations which will differ from the abnormal gains of last year.
Do you see the virus as a big risk, considering the rally in the US? Also do you expect three rate hikes by US Fed in 2022?
The Omicron variant is reported to be clinically milder than the Delta variant and has a lower risk of hospitalisations. In the past few weeks, the US and other global equity markets soared to new highs due to the same reason. The minutes of the FOMC meeting in December had shown a tight job market and unrelenting inflation. Weekly jobless claims have fallen back to near five-decade lows.
There are strong positive catalysts for further upside for stocks despite a strong run so far such as the fourth quarter earnings season in the US in coming weeks which is likely to beat consensus estimates, non-farm payroll data which is due later this week and inflation data due next week.
We believe that a strong US economy and higher inflation could lead the Federal Reserve to unwind economic stimulus more aggressively and hike interest rates faster than investors had anticipated. Minutes of the US central bank meeting have also indicated that policymakers want to shrink the Fed’s balance sheet soon after rates begin to move higher.
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