From the perspective of equity markets, Kamal Manocha, founder & CEO of PMS AIF World, says if long term capital gain tax on equity investments is increased in Budget 2022 or the definition of long term in this context is increased from 1 year, it would be a surprise.
In 2022, he feels the market can give double digit returns but that the Nifty is unlikely to go past the 21,000 mark. “The market will witness volatility because of Fed rate hikes, rising Inflation, as well as COVID. So, one must make mindful equity investments.”
Edited excerpts from an interaction with Moneycontrol follow:
Will the government focus more on sectors that generate more employment or sectors most affected by the pandemic?
The Government is not working for tactical goals. Its vision is structural and long term, and the focus of the economic budget for FY23 would be a step in that direction, by focusing on sectors that can bring in employment and that will eventually address the adversities of the pandemic as well.
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What could be the surprising elements in the budget if any?
From the perspective of equity markets, if long term capital gain tax on equity investments is increased or the definition of the long term period in this context is increased from 1 year, that would be surprising.
Apart from this, despite being growth focused in its actions so far, if the government distracts itself towards more populist measures because of elections, that will be surprising too.
What could be the factors that can drive a market rally on budget day or persuade FPIs to pump in money on budget day?
The market has already discounted that the budget will be growth focused, and an immediate upside from the budget per se looks unlikely. In other words, the budget is going to be a non-event for the markets. However, in case of any surprises, the market may find a reason to fall, in the near term. But, yes, post budget, as businesses plan for FY23, growth drivers will lead to stock specific upsides in those businesses that demonstrate growth.
How do you read corporate earnings announced so far for the December 2021 quarter?
Good so far, and great for IT, as was expected.
After the Budget, what are the other important events or factors to watch out for in the rest of 2022?
There are many factors to watch out for as always like the Fed Stance, Inflation, RBI Monetary policy, Earnings for Q4 and so on. Basically, the easy period of an index specific rally is behind us.
Year 2022 is a year of consolidation, volatility and correction. And mind you, correction is a positive word for those who see equity as an opportunity and not as a risk. And correction in this context conveys share price alignment to realistic levels, whereby it falls for those whose growth numbers falter and rises for those whose growth numbers accelerate.
Thus, we are back to the year of a stock specific market, but not as narrow as 2019, as one difference that 2022 brings is a rise in economic growth.
Do you expect the market to give a double-digit return in 2022 and close the year above 21,000 on the Nifty50? Also in 2022, do you think the market will still be worried due to expectations of three rate hikes by the Fed, inflation and COVID?
Yes, the market can give a double digit return, but the Nifty rising beyond the 21,000 level looks unlikely. Yes, the market will witness volatility because of Fed rate hikes, rise in Inflation, as well as COVID. So, one must make mindful equity investments.
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