Deepak Jasani is the Head of Retail Research at HDFC Securities
Union Budget 2022, which is due to be presented by the Finance Minister on February 1, could focus on maximising growth-supportive expenditure (capex and infra spends) and providing adequate allocations to production-linked (PLI) schemes, says Deepak Jasani, Head of Retail Research at HDFC Securities.
He further expects more clarity on impending privatisation of IDBI Bank and two PSBs, which the Government of India (GoI) had indicated could happen in FY2022.
In case the government positively surprises the street by a lower-than-expected fiscal deficit number for FY23 and/or brings out a practical plan for speeding up disinvestment and monetization of assets, then the stock markets may get excited, says Jasani in an interview to Moneycontrol.
Earnings season was kicked off by IT companies and HDFC Bank last week. Do you expect a significant earnings upgrade after the Q3 earnings?
Broadly, revenue and profit growth will be healthier across the board but margins will remain affected due to high metal and energy prices. Cyclicals will lead the performance in Q3, benefitted by the tailwinds of higher prices. While IT services will deliver Q3 numbers as per and beyond expectations, a few of them may up the guidance, necessitating earnings revision.
Metals and Oil & Gas companies earnings may come up for upward revision, especially for FY22. However the shadow of Omicron-induced disruption, its length and severity, may prevent an earnings upgrade in most other companies. The impending liquidity tightening and rate hikes also create uncertainty for most corporates.
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Which sectors will report double digit profit and revenue growth in Q3 on a year-on-year basis and which sectors will register negative profit growth on a year-on-year basis?
Price hikes will lead to revenue growth in most sectors. Oil & Gas, Metals (Aluminium and Steel), Cement, IT Services, Retail & Specialty chemicals are some sectors that could see double digit YoY growth in revenue (in some cases helped by a low base). In terms of profits, Banks, Oil & Gas, Metals, NBFC, IT services and Retail could report double digit growth, while Auto and Cement could report a double digit fall on a YoY basis.
The Union Budget is the next key event to watch out for. What are the key focus areas and will it be a game changer?
We think the Budget could focus on maximising growth-supportive expenditure (capex and infra spends) and provide adequate allocations for production-linked (PLI) schemes. Healthcare infra and spending could also see an uptick. Fresh moves to tackle inverted duty structures while focusing on reducing evasion as well as the compliance burden on businesses and individual taxpayers could be another objective.
This apart, we expect more clarity on the impending privatisation of IDBI Bank and two PSBs, which the Government of India (GoI) had indicated could happen in FY2022. Clarity on operationalisation and scaling up of the National Asset Reconstruction Company Limited and National Bank for Financing Infrastructure and Development is expected as are enhanced budgetary allocations for housing schemes such as Pradhan Mantri Awas Yojana.
Trade, hotels, transport and communication have been badly hit by the pandemic and continue to struggle. These may come under special treatment in the Budget.
In case the government positively surprises the street with a lower-than-expected fiscal deficit number for FY23 and/or brings out a practical plan for speeding up disinvestment and monetisation of assets, the stock markets may get excited.
Which are the sectors to bet on ahead of Union Budget 2022 and why?
Agri related segments, Infra and construction, Capital Goods, Housing finance, Retail, Hospitality, Textiles, Healthcare and efficient manufacturing companies generally could do well in case the Budget provisions are in line with the expectations mentioned above.
Initial numbers released by banks generated confidence among market participants in the last few days. Is this the right time to add banking stocks in a portfolio or should one wait for actual Q3 earnings?
Banks (especially private banks) have underperformed over the past few quarters due to low credit growth, asset quality issues cropping up and heightened competition from existing and new players (including fintechs). Select private Banks look good to invest in from a medium-term perspective. Over the long term, however, Banks face issues of disintermediation, falling fee income, threat of NIMs (net interest margins) coming down and limited avenues of lending in relatively safer places.
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Recently US 10-year bond yields spiked amid expectations of faster policy tightening and rate hikes in 2022. Do you think the US 10-year bond yields could cross the 2 percent mark soon?
Though I am not following US yields closely, the upward momentum in yields and high inflation number could take interest rates in the US to 2 percent. A quicker raising of rates by the US Fed could also aid in this happening by March-April 2022.
Do you see the Nifty50 crossing the 20,000 mark in the first half of CY22, and if so, why?
Though it seems difficult going by the macro headwinds globally, in case the Budget excites FPIs (foreign portfolio investors) to become bullish on India, then there is a chance of this happening.
Where do you see Sensex and Nifty50 in the runup to Budget?
The Nifty and Sensex could attempt to reach their all-time highs and even breach them (though this seems difficult).
What could be the three biggest announcements in the Budget?
Sticking to the path of fiscal consolidation, monetisation of public assets and divestment of stakes in PSUs, and calibrated spending on social welfare and health on the one hand and capex (including Infra and Railways) on the other could be the major announcements.
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