Markets are currently nearing historic highs. This could lead to a period of consolidation for the remainder of 2024. The market has experienced significant growth, and it's natural for it to take a breather. However, this doesn't rule out the possibility of upward movements driven by positive economic indicators, strong corporate earnings, and favourable government policies.

COMMERCIAL BREAK
SCROLL TO CONTINUE READING

For the mid-cap and small-cap space, the expert noted while these have registered impressive gains this year (around 21% YTD), but some caution is warranted. While growth potential is enticing, valuations might be stretched, raising concerns about a potential pullback,  says Trivesh, COO at Tradejini in an exclusive e-mail interview with Zee Business.

Trivesh D – COO Trivesh is Tradejini's Chief Operating Officer, and brings over seven years of financial expertise to the table. His career began with securing funding between $5 and $20 million for young startups from alternative investment sources.  

- What strategies would you recommend for trading on the day of the budget announcement?

I usually advice caution on the day of the budget announcement. Historically, the markets tend to show a negative bias leading up to the budget due to rising uncertainty. It's common for traders to book profits and hold cash, waiting for the event to pass. Since 2010, we have seen an average return of -0.45% in the week before the budget. As market reactions can be extremely volatile and unpredictable, I advice against using any strategies on the budget day itself. It's often best to let the dust settle before making any moves.

-How should investors position their portfolios in anticipation of the budget?

I do not believe long-term investors need to make any immediate changes based on budget expectations. It is more effective to wait for the government's priorities to be clearly outlined. Once the budget details are clear, long-term investors can gradually invest in sectors that stand to benefit. 

Instead of focusing on the event itself, consider a wait-and-see approach. After the announcement, take your time to analyze the implications and then make informed investment decisions in the relevant sectors.

- Which sectors do you believe will be most impacted by the upcoming budget, and why?

I expect the budget to continue focusing on infrastructure development and enhanced connectivity, which should positively impact the construction (up 8% YoY), and steel (up 12% YoY) sectors. Investors should consider increasing exposure to companies in these industries, as they are likely to benefit from ongoing government spending. Additionally, sectors like defence and tourism might see favourable outcomes due to continued capex.

Additionally, election promises around affordable housing, healthcare, and renewable energy could see budgetary allocations, creating opportunities in those industries as well. Overall, maintaining a focus on the infrastructure and power sectors seems prudent given the anticipated government priorities.

- What are your expectations regarding major announcements or policy changes in the upcoming budget?

I'm anticipating a few significant announcements in the upcoming budget. With one-time fund inflows like the dividend from the RBI, there is a chance the government might use these funds to pay off a substantial portion of public debt, given that interest payments are a major expenditure. We might also see tax reductions aimed at the middle and lower-middle classes, providing some savings in their hands, which may lead to increased consumption.

- As a Chartered Accountant, what do you think are the key tax implications that businesses and individuals should be aware of following the budget announcement? 

Following the budget announcement, there are several key tax implications to consider. For businesses, changes in corporate tax rates and amendments to the GST Act will be crucial. The potential for retrospective tax relief and incentives for certain sectors, like manufacturing and renewable energy, could have significant impacts. For individuals, any adjustments to income tax slabs or increased deductions for savings and investments will be important. Additionally, tax relief for the middle and lower-middle classes may provide substantial benefits. It is essential for both businesses and individuals to closely analyze these changes and adjust their tax planning strategies accordingly.

- Do you anticipate the market to consolidate for the remainder of 2024, or do you foresee further upward movements?

Markets are currently nearing historic highs. This could lead to a period of consolidation for the remainder of 2024. The market has experienced significant growth, and it's natural for it to take a breather. However, this doesn't rule out the possibility of upward movements driven by positive economic indicators, strong corporate earnings, and favourable government policies.

- Mid and small-cap stocks have been performing strongly despite concerns over fundamental strength. What is your perspective on this trend?

It's true that mid and small-caps have seen impressive gains this year (around 21% YTD), but some caution is warranted. While growth potential is enticing, valuations might be stretched, raising concerns about a potential pullback. See, these stocks have already experienced significant growth, creating a frothy market environment. Eventually, there will be a correction, as valuations may not be sustainable in the long run. Investors must focus on the fundamentals and be prepared for potential volatility in these segments.

- Should investors consider buying mid and small-cap stocks at these levels, or exercise caution?  

I would advise investors to be cautious with mid and small-cap stocks at these levels. Given their recent significant growth, the market for these stocks is frothy and a correction is likely. Instead, it is more prudent to concentrate on large-cap stocks, which tend to be more stable and have stronger fundamentals. The decision to invest in mid and small-caps depends on your risk tolerance and investment goals.

- Based on recent trends, do you expect foreign portfolio inflows to mirror 2023 levels, or are outflows more likely?

In 2023, we saw significant inflows of ₹1.65 lakh crore, especially in the latter half, indicating strong interest in Indian markets. However, global factors like rising US interest rates could dampen sentiment, potentially leading to some short-term outflows. While FPI flows might not reach the 2023 peak, a return to pre-2023 levels is possible. The upcoming budget and its impact on key sectors will be crucial. Overall, I expect foreign portfolio inflows to increase as investors seek higher returns and a stable investment environment in India.