Amit Jain is the chief strategist of Ashika Group and co-founder of Ashika Wealth Advisory
Amit Jain, chief strategist of Ashika Group and co-founder of Ashika Wealth Advisory, feels earnings have been broadly in line with expectations so far. However, “inflationary pressure is clearly visible in earnings. This cost pressure may spike further in coming quarters and keep broader P/E (price/earnings) multiples in check.”
Apart from earnings, another key event is Union Budget 2022 which will be presented on February 1. “Any reduction or abolition of capital gain tax can immediately boost FPI (foreign portfolio investment) sentiment on the budget day itself. Also, if the government takes decisive action on tax laws relating to residency rules, then it may further boost foreign investment in India,” says Jain. Edited excerpts:
Will the budget focus more on populist measures ahead of state elections?
Yes, there are high possibilities that this budget will be more populist and growth-oriented rather than keeping a strict control on fiscal deficit or any other macro factors. In this year we have elections in seven states, hence there are higher chances that the government may try to woo the lower end of the pyramid with a lot of social sector schemes.
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Will the government focus more on sectors that generate more employment or sectors affected the most by the pandemic?
In my personal view, the government may be taking a balanced approach. If the government rolls out lucrative PLI (production-linked incentive) schemes for MSMEs (micro, small and medium enterprises) and raises MSP (minimum support prices) for agriculture, then both objectives can be served as it covers 90 percent plus of the population.
Also, we may see increased spending on infrastructure and healthcare schemes, which may have a ripple effect for the economy.
What could be the surprising element in the budget if any?
Also read – Budget 2022: India set for modest fiscal consolidation amid slow economic recovery
Taxation of global tech firms for their India business revenue and some other stringent privacy laws may evoke some knee-jerk reaction from global investors. Also, we may see a major directional announcement to transform the Indian economy from fossil-based to gas and power-based by 2030. This will be in line with a broader objective to meet ESG (environmental, social, and governance) guidelines which are followed globally nowadays.
What could be the factors driving the market rally on budget day or persuading FPIs to pump in money?
Any reduction or abolition of capital gain tax can immediately boost FPI sentiment on the budget day itself. Also, if the government takes decisive action on tax laws relating to residency rules, then it may further boost foreign investment in India.
Also read – Budget 2022: Shipping ministry seeks 60% higher allocations for ship recycling capacity expansion
After the budget, what are the other important events or factors to watch out for in the rest of 2022?
The most important global event shall be the US Fed action on their bond buying programme and their actions on proposed interest rate hike. Given the scenario, we may have three to four rate hikes in 2022, if inflation doesn’t come down to a comfort level of two percent. If this inflation pressure persists for long, then we may see some price and time correction in global markets.
In addition, we need to keep an eye on Russia-Ukraine tensions and strengthening of China’s alliance with Russia, which may destabilise the world power equation.
Do you expect the market to give double-digit returns in 2022 and close the year above 21,000 on the Nifty50? Also this year, do you think the market will still be worried due to expected three rate hikes by Fed, inflation and Covid?
We are cautiously bullish on the Indian market for the financial year 2022-23. We believe Nifty may touch 21,000 before March 2023, as there are a lot of sectors which are undervalued within Nifty and broader market indices. However, this year is going to be a stock picker’s market, rather than a broad-based market rally.
Yes, the market is concerned about such a steep rate hike proposed by the Fed but, in my view, the stock market will pass through this rough weather in the medium to long term as there is enough liquidity in global markets.
How do you read earnings announced so far?
So far earnings have been broadly in line with expectations. However, inflationary pressure is clearly visible in earnings. This cost pressure on earnings may spike further in coming quarters and keep broader market P/E (price/earnings) multiples in check.
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