Sahil Kapoor is the Head Products and Market Strategist at DSP Investment Managers
Sahil Kapoor, Head – Products and Market Strategist at DSP Investment Managers, says it will be important to watch Union Budget 2022 for the intent of the government to keep its quality of expenditure focussed on building pillars of growth.
He expects the Union government to focus on infrastructure development, exports, upping health and sanitation expenditure, and providing a detailed roadmap of disinvestments and the fiscal health of the economy.
Finance Minister Nirmala Sitharaman will present the Union Budget on February 1, 2022.
Kapoor says a robust plan and an execution framework for the disinvestment process will be beneficial.
The market rallied 10 percent from its recent bottom. Can we call it a pre-budget rally? Or is it because of attractive valuations? Given the current run-up, can the market hit fresh highs before the Union Budget?
A number of events on the horizon, like the Union Budget, the end of US quantitative easing (QE), post-budget RBI monetary policy, and the ongoing earnings season, have enough triggers to cause more volatility in the market.
The long term will be governed by how fast earnings catch up to justify current valuations. There is froth in pockets of the markets, which may get worked off in the next few months.
January usually sees the highest flows of the year. The rebalancing and reallocating in January, along with the ongoing earnings season, has been a key driver. It is not very clear what drives short-term moves. It is a mix of certain triggers and the ongoing market sentiment.
The Union Budget will be presented on February 1. What are your top five expectations from the budget or is it a non-event for the market?
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The government of India has tried to do a large number of key reforms outside the Union Budget over the last several years. That appears to be the case now as well. The budget will be important from the point of view of the intent of the government to keep its quality of expenditure focussed on building pillars of growth.
I expect the government of India to focus on infrastructure development, exports, upping health and sanitation expenditure, and providing a detailed roadmap of disinvestments and the fiscal health of the economy.
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Which are the sectors that the government will focus on in the Union Budget?
Infrastructure, agriculture, automobiles, chemicals and financial services are likely to be the key focus sectors.
Do you feel there will be greater focus on asset monetisation and divestment in the forthcoming budget?
The way government policy has shaped up in terms of creating a national infrastructure pipeline and avenues to fund India’s growth, it is likely that economic policy progression will focus on disinvestment. The disinvestment process has been slow over the last few years due to various issues. A robust plan and an execution framework will be beneficial.
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What are your broad expectations from the December quarter earnings and will it support current market valuations?
The earnings trajectory has been on an upswing over the last four quarters. The key and probably the only focus area is how much input price pressure has started to hit margins. This, along with the trajectory of top line growth recovery, will decide whether we see upgrades or see a downgrade cycle start. In that sense, the upcoming earnings season will be crucial.
What are the major themes one should bet on at the start of 2022 and why?
I believe that BFSI and Pharma & healthcare could be two themes that may emerge stronger in 2022. India’s credit growth has bottomed out and the economic recovery is gaining traction. Both retail and corporate balance sheets are again looking healthy for different reasons. A combination of growth and a technology-led boost can support the BFSI sector in staging a recovery.
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Healthcare & pharma has seen a stark underperformance. The financials have seen steady improvement while stock prices have seen value erosion. This sets the stage for pharma companies to do well.
Do you think the virus will not be a big risk henceforth considering the rally in the US? Also do you expect three rate hikes by the US Fed in 2022?
It would seem that the world is now more resilient to different strains of the virus, both because of vaccines and adaptation. Therefore virus-led disruptions are likely to decline in 2022. The removal of monetary and fiscal stimuli is the likely source of risk for markets. The US Fed’s stance on rates is that of a few hikes to normalise policy rates. Markets expect three rate hikes this year. My expectation is that the Fed may raise rates at a slower pace than anticipated and may continue to keep an eye on growth recovery.
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