Sorbh Gupta is the Fund Manager- Equity at Quantum AMC
The market rallied sharply ahead of Union Budget 2022. Sorbh Gupta, who is the Fund Manager for Equity at Quantum AMC, says continued expansionary fiscal policy with higher allocation to infrastructure spending will be taken positively by the market.
“Further, announcements which leave more money in the hands of people, like tax cuts will also be positive for consumer companies,” he shares during an interaction with Moneycontrol.
Gupta, however, says any increase in capital gains tax rate could be a negative surprise for the market. “Any new cess can also surprise the market negatively.” Excerpts from the interview:
The market corrected more than 6.5 percent before rallying on Monday, but it remained volatile, although stayed in a range. Do you think the market can hit recent highs on the Union Budget?
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The stock market volatility can be attributed more to reversal in easy global interest rate environment led by the US Fed than the Union Budget. As inflation hovers above the comfort zone of central bankers, the global risk free rates are expected to go up. This is leading to changes in discount rate and fair value calculations of stocks.
What could be surprising elements, if any, in the Union Budget?
Any increase in capital gains tax rate could be negative surprise for the markets. Further, any new cess can also surprise the market negatively.
What could be key announcements that would lift the market sharply on the Budget day?
Continued expansionary fiscal policy with higher allocation to infrastructure spending will be taken positively by the market. Further, announcements which leaves more money in the hands of people, like tax cuts will also be positive for consumer companies.
Also read – Economic Survey 2022: India needs to invest $ 1.4 trillion by 2024-25 on infrastructure to achieve $ 5 trillion GDP
Do you think the government will announce a growth-oriented Budget or a populist (especially ahead of states elections) Budget today?
This government till now has resisted populist measures, barring a few before the Union Elections in 2019. There could be some steps for placating farmers. But overall this Budget should be growth-oriented.
Will FIIs remain net sellers in the first half of 2022, given the risk of rate hikes by the Fed and the rising inflation concerns?
Also read – Economic Survey 2022 | Railways to see ‘very high’ capital expenditure in next 10 years
There could be FII outflows in the near term as market participants reset there expectations to factor higher global interest rate regime. But, from a medium and long term perspective, India will remain the fastest growing large economies in the world and will attract its fair share of global capital flows (both portfolio flows and FDI).
What is your reading on corporate earnings announced so far? Also is it a major reason for current call in the market?
Also read – Economic Survey 2022 | Survey steers clear of farmer protests, farm sector reforms
Corporate earnings have been in line with expectations. Topline growth has been fairly strong but operating margins have come under pressure for many of the industries due to input price inflation. The corporate earnings upgrade cycle should continue as India witnesses a cyclical upturn in its economy.
Apart from Budget, what are the key events to watch out for in 2022 and what are those events that could hit market sentiment?
Inflation trajectory (both global and domestic) and pursuant central banker action in terms of interest rate hike would be important variables to watch out for in 2022. From an Indian context, a normal monsoon would also be necessary to revive rural economy which has been hit by agri input inflation, COVID-19 and weaker remittances from cities.
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