Dalal Street Voice: India is an attractive investment destination and past US Fed rate hikes have not been bad for D-Street: Sonam Srivastava

Sonam Srivastava, Founder at Wright Research said that 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.

Sonam is an IIT Kanpur Alumnus and has experience of over 9+ years in Quantitative research and portfolio management working on systematic strategies, algorithmic trading, long-short strategies, arbitrage, and high frequency trading.

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In an interview with Zeebiz's Kshitij Anand, Srivastava said this is a Capex boosting budget which is prudent in other expenditures as the FM looks to contain the fiscal spending while enhancing growth. Edited excerpts:

Q) On a scale of 1-5 – how do you rate the overall Budget 2022 (5 being the best) and what is the rationale behind the rating?

A) We would rate this budget at 3.5 as it was very much in line with market expectations and treaded the delicate balance between growth and fiscal prudence by pushing Capex investments.

This budget will go a long way in boosting growth if the infrastructure spending delivers but might also trigger inflation.

There were no surprises - positive or negative, but the focus on digitization, upskilling, education, fintech, and inclusivity was a good call by the FM.

Q) Where do you see markets headed post Budget 2022? What will be a more significant driving force – US Fed or Budget allocations?

A) The budget has broken the drawdown in the index, but the effect of the announced infrastructure push would only come out long-term.

This budget reinforces the sentiment that the government is focused on bringing back cyclical growth in the economy by reviving the Capex cycle.

The implementation of the infrastructure push is pretty complex and would need to be watched. More immediate worry would be the Fed rate hike, and its effect would be seen in the broader global market sentiment.

Indian economy remains strong, so we can see the rate hikes do not adversely affect us. In the budget, the government has kept the Fiscal deficit target broad, so there could also be a rise in inflation, worrying about the rising Fed rates.

Q) How do you see the government managing its fiscal math?

A) The big surprise in this budget for the economists was the big fiscal deficit target. Many were expecting the government to keep the fiscal deficit target more conservative.

Still, the government has decided to push the Capex cycle and bolster infrastructure development with the budget announcements.

This push was needed to revive the economy, but the overall fiscal deficit could bring on inflation and worry when the Fed starts raising interest rates.

Apart from the fiscal deficit number, the revenue collection numbers from last year were awe-inspiring, and the government has kept the projections for the next year conservative.

Q) Which sectors are likely to benefit the most from Budget 2022 and why?

A) This is a Capex boosting budget which is prudent in other expenditures as the FM looks to contain the fiscal spending while enhancing growth.

Therefore, the FM has increased the Capex investment target by 35% to 7.5 lac crore and announced critical investments and policies for infrastructure development via railways, metro systems, highways, primarily through the PM Gati Shakti initiative.

As a result, railway and Logistics linked stocks, capital goods, Cement, and Real Estate will gain with this.

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.

FM has also kept an increasing focus on digitization, leading to gain for the platform companies and fintechs.

Q) Any announcement you thought stood out from the Budget speech or document?

A) This is a Capex budget, and the FM has come out strong in terms of infrastructure spending. This would go a long way for India’s cyclical recovery in the next few years.

Focus on digitization and reducing the compliance burden for various sectors was also a stand-out of this budget. While the focus on welfare was there, the budget did not turn out populist, making it positive.

Q) How do you see the renewable space in the 2022 post Budget announcements?

A) Renewable space did get a mention in the budget even though no exceptional spending was announced in this space.

The incentive for Battery swapping technologies, 19,500 Cr PLI for Solar PV modules, and Green bonds were important announcements. We expect the sentiment for renewables to be vital after the budget.

Q) What is your take on December quarter earnings so far?

A) The December numbers have been substantial so far, with the banking sector posting impressive numbers. The IT sector also posted excellent numbers, but the stress from attrition and margin tightening can be seen.

The biggest company on the index, Reliance, beat street estimates, while Tata Motors' results were mixed. However, 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.

Q) FIIs have remained net sellers in the last three months, at least in the cash segment, and January was no different. What is the likely trend now – in light of the hike in US Fed rates?

A) US Fed rate hike is a big event spooking the global 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 delivers on the promise 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.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)