Sonam Srivastava is the Founder of Wright Research
With Budget 2022, the government has shifted focus to infrastructure growth. The Finance Minister has increased the Capex investment target by 35 percent to Rs 7.5 lakh crore and announced critical investments and policies for infrastructure development via railways, metro systems, highways, primarily through the PM Gati Shakti initiative. Therefore, “Infrastructure, Construction, Capital Goods, Cement, Banks, and Real Estate will gain if the budget planning is successfully implemented,” says Sonam Srivastava, Founder of Wright Research.
Hence, it is an excellent time to add these sectors to a diversified portfolio with a 10-20 percent allocation for the long term, says Sonam, a quantitative investment management and trading professional.
We are towards the end of the December quarter earnings season. How do you read quarterly earnings announced so far?
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The earning cycle is in a growth and recovery path even though the rising inflation has started affecting the margins. The banking sector has posted impressive numbers, and the IT sector posted great topline numbers, but the stress from attrition and margin tightening can be seen. The manufacturing industry is stressed due to higher prices, whereas Metals and downstream Oil & Gas firms have posted good numbers. The biggest company on the index, Reliance Industries, beat street estimates while Tata Motors’ results were a mixed bag. We expect the earnings growth to keep the pace going forwards as Omicron hasn’t had too much impact, and the Budget has provided a growth push.
What are your general expectations from the RBI policy meeting scheduled next week? This is the first meeting after Union Budget?
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With the government targeting a wide fiscal deficit, there is pressure on the RBI to control liquidity and inflation. The long-term yields have risen sharply after the budget. The RBI must manage liquidity and inflation while supporting growth. The majority of the analysts expect the RBI to keep the repo rate unchanged while managing liquidity via the VRR auctions. The comments by the RBI Governor will be closely watched.
Is it the right time to invest in infrastructure, construction, capital goods, banks, and realty stocks, especially after Union Budget, wherein the Capex increased by 35 percent to Rs 7.5 lakh crore for FY23.
With Budget 2022, the government has shifted focus to infrastructure growth. The FM has increased the Capex investment target by 35 percent to Rs 7.5 lakh crore and announced critical investments and policies for infrastructure development via railways, metro systems, highways, primarily through the PM Gati Shakti initiative. Therefore Infrastructure, Construction, Capital Goods, Cement, Banks, and Real Estate will gain if the budget planning is successfully implemented.
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It is a good time to allocate to the mentioned sectors, but these sectors are tricky to time and allocate to. Therefore, it is an excellent time to add these sectors to a diversified portfolio with a 10-20 percent allocation for the long term.
Do you think the budget will help in consumption revival given the high unemployment and rural distress in the country?
The budget has not directly focussed on addressing high unemployment and rural distress, which is a glaring issue for India Inc. Rural subsidies and welfare budgets have been trimmed. Instead, the focus has been on a more significant business cycle revival with the Capex push. With no immediate emphasis on consumption revival, it is tough to say that the budget has addressed these issues, but the infrastructure push can lead to greater welfare in the longer term.
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FIIs have already sold more than Rs 1.4 lakh crore worth of Indian equities since September 2021. What are the decisions by Fed that could hamper FII flow in emerging markets, including India?
The US Fed rate hike is a big event spooking the global world everywhere. There will be a concrete direction only when the definite hike schedule is announced. There is a lot of speculation, which is causing confusion and volatility. I expect the Indian markets to be strong in the long term, especially if this budget promises we will have good growth in the next year. India is an attractive investment destination, and rate hikes are not necessarily harmful, as seen from 2004-07 and 2013-14. I expect the strength to come back as the situation clarifies itself.
What are the themes that one should consider for the portfolio with a 1-2 years’ perspective?
The big themes for the next 1-2 years are infrastructure growth and cyclical recovery, as the budget has clarified. Also, FM has focused on Fintech instead of Banking, Electric Vehicles, and Edtech instead of Education which has brought back focus to the new-age innovative sectors. So new economic sectors which might have reached a bottom and are sustainable can be key in the next few years.
What are the three things you liked and disliked the most from Union Budget 2022?
I appreciated the intent to bring on cyclical growth with an infrastructure push, focus on digitisation and reducing the compliance burden, and boost education and upskilling with edtech.
I am sceptical about the challenges of managing inflation with a high fiscal deficit target. More focus could have been given to the bond market, and rural welfare could have received greater attention.
Oil prices were back above $ 90 a barrel now, and if it hits $ 100 a barrel in the near term, will it dampen the market sentiment, but should one be worried due to that correction?
The Russia-Ukraine crisis has caused supply-side disruption in oil production while the demand is already too high. The budget has assumed an oil price of $ 65 a barrel in its projection, and if oil prices rise, there will be a need for government subsidies. A spike to triple-digit oil prices would be a worry in the near term, triggering inflation.
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