Lav Chaturvedi is the Executive Director and Chief Executive Officer at Reliance Securities
Come February 1, as Finance Minister Nirmala Sitharaman will present the Union Budget for 2022-23, there will be expectations of higher capital spending on infrastructure to revive the economy despite a widening fiscal deficit, says Lav Chaturvedi, the Executive Director and Chief Executive Officer at Reliance Securities.
Sharing his views with Moneycontrol in an interview, the ace finance professional reiterates that infrastructure is the backbone of any economy and has strong multiplier effect in job creation, which is the need of the hour. “We expect double-digit growth in infra spending. This would be the key monitorable by market investors,” he says.
His company sees the Nifty50 to scale 20,000 level by the end of 2022. “We believe that India is better placed among many nations in handling the COVID situation as well as it has high potential for growth over the next decade, aided by the China+1 policy and the government’s increasing focus on Make-in-India,” Chaturvedi says.
Excerpts from the interaction:
The Union Budget is the next key event to watch out for. What should be the key focus areas for the Budget? Do you think this will be a game-changer?
Budget 2022 attains higher importance for the economy as well as for the markets given the challenging situation we are in. The government’s strategy would play a very crucial role for the economic revival. Let’s break down the key focus areas for this budget as we see it.
1. Beefing up Health Infrastructure: In the last two years of pandemic, we realised the importance of healthcare infrastructure. Strengthening public health infrastructure, making the people ready for any variant of the virus with maximum vaccination and supportive infrastructure to take care of people should be the key focus. The government had allocated more than Rs 64,000 crore to the ministry of health and family welfare and Rs 35,000 crore in the Budget for vaccination and improving overall healthcare infrastructure. Similar to the last Budget, we expect a step-up in healthcare spending and incentives/schemes to develop the hospital segment.
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2. Higher Capital Spending: We expect higher capital spending on infrastructure to revive the economy despite the fiscal deficit standing elevated. Infrastructure is the backbone of any economy and has a strong multiplier effect in job creation, which is the need of the hour. Therefore, we expect double-digit growth in infra spending. This would be key monitorable by market investors as well.
3. Reducing Carbon Emission: The prime minister announced in Glasgow that we will reach net zero carbon emissions by 2070. The government has been emphasising on electrification and green energy since the past 2-3 years. We expect incentives and promotion to energy sector for massive green transformation, which is a theme for the next decade. This would drive a multi-year growth story for many green energy companies going ahead.
What are the sectors to bet on ahead of Union Budget 2022 and why?
We expect Capital Goods, EVs (electric vehicles) and green energy segments to be key beneficiary of the Budget. Let’s look deeper into the sectors.
a) Capital Goods and Engineering: For a healthy economic recovery, capex revival by the government as well as by corporates is a must. India is at the cusp of a capex revival, particularly in the capital goods sector. The government’s support through PLI (production-linked incentive) and China +1 factors would further encourage manufacturing. The sectoral outlook appears to be promising from the mid-to-long-term perspective with huge opportunities coming from various infra projects like the National Infrastructure Pipeline (NIP), PLI schemes and Make-in-India-led localisation.
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b) Electric Vehicles: We believe that the adoption of EVs would be a transformational change over the next decade, with an increasing focus on new vehicles by most OEMs (original equipment manufacturers). Moreover, the entire value chain development and EV ecology provide ample opportunities to the various associated industries in the EV space. The government’s continuous focus on EV adoption and development of EV batteries, EV chargers, creating EV ecology so on would now play out as it has been incentivising this segment since the last two-three Budgets through schemes like FAME and PLI and increasing the outlay every time. Despite, EV adoption being gradual, it has a huge potential for growth in terms of localisation as well as an opportunity to make India a global manufacturing hub for EV and EV equipment/ancillaries.
c) Green Energy: The government’s commitment to meet zero carbon emission by 2070 has a clear road map for the green power sector. We expect budgetary support to green energy generators and gear makers in solar power, wind power, hybrid power and so on. Moreover, increasing electrification would demand higher power consumption through alternate energy only. This would also pave way for green energy going forward. This is the next promising sector.
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Do you expect significant earnings upgrade after Q3 earnings?
Majority of IT companies delivered very strong outperformance across parameters. More importantly, these IT giants are upgrading their growth guidance, which strengthens positive view and make a case for earning upgrade. While we would like to see other sectors’ quarterly performance before concluding overall upgrade for coverage universe as manufacturing sector would face some challenge on higher input cost and other cost inflation.
What are the sectors according to you that will report double-digit profit and revenue growth in Q3? Which sectors do you think will register negative profit growth in Q3?
Within our coverage sector, we see IT sector to exhibit double-digit on-year growth, while auto, midcap, capital goods sectors would see a year-on-year decline due to higher raw material cost pressure and lower operating leverage.
Is it the right time to add banking stocks in a portfolio or should one wait for actual Q3 earnings?
Initial numbers released by banks are strong to generate confidence, while Q4FY22 would be very important, as increasing COVID caseload may impact the economy and overall business activities. Any restrictions or lock down has high bearings on banking sector and NPA (non-performing assets) level, which may keep banking sector under pressure over near term. Buying on such decline is advisable.
US 10-year bond yields spiked quite sharply amid expectations of faster policy tightening and rate hikes in 2022. Do you think the US 10-year bond yields could cross 2 percent mark soon?
The 10-year bond yield crossed 1.8 mark. In view of the Fed stance on liquidity curtail further, 2 percent mark cannot be ruled out.
Do you think the Nifty50 could cross 20,000 mark in first half of CY22?
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We have 2022 year-end target for Nifty50 is 20,000. In our latest Strategy report released last week, we have raised our Nifty50 target to 20,000 for CY22, valuing it at 22x FY24 earnings. We believe that India is better placed among many nations in handling COVID situation as well as it has high potential for growth over next decade, aided by China+1 policy and the government’s focus on Make in India.
Therefore, it would continue to enjoy premium valuation on the back of healthy earning CAGR of 18 percent over FY21-24. Market sentiment is positive ahead of budget and likely to remain buoyant leading to further 2-4 percent up move for Nifty in the run up to budget from current level.
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