Pradeep Gupta, Co-Founder & Vice Chairman, Anand Rathi Group said the expectation of the current budget is that the government is set to roll out more supportive schemes for agriculture, the rural economy, micro, small and medium enterprises, and social sectors.

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With over two decades of rich experience in financial markets, he has played a pivotal role in laying the foundation of the Institutional Broking and Investment Services arm of the group.

In an interview with Zeebiz's Kshitij Anand, Gupta said it is important that portfolio strategy is driven by long-term goals and objectives rather than shorter-term market movements and sentiments. Edited excerpts:

Q) What is your call on markets? Are we seeing a pre-budget rally that helped Nifty climb 18000 levels?

A) I believe that on a longer time horizon, large-cap equities can deliver a 10%-14% return per annum. With the improvements in India’s macro and corporate fundamentals since the second half of 2020, the possibilities of receiving such returns from the Indian equity market has only improved.

That said, it does not mean that equities would provide a double-digit return every year. With 15%+ return in 2020 and even better returns in 2021, the possibility of equity return being slightly below the long-term return in 2022 is a distinct possibility.

One should not expect similar kinds of returns that were delivered in the last two years, yet we believe that equity as an asset class is still set to deliver positive upside in 2022.

Historically, we have witnessed the markets always react basis the news flow in a positive or negative manner to the budget.

We believe that this Budget is not going to be negative from the pre-set expectation levels and hence we are hoping to see positive traction in the market during the budget period.

Q) What are your expectations from Budget 2022? Do you think the government will be able to meet its divestment target?

A) The focus of this year’s budget is expected to be growth-oriented, pragmatic, and on a positive note. I do not foresee the budget to hurt any fiscal math of the government, and I feel that the government would create a balanced budget to take into consideration the growth and also avenues for revenue generation such as disinvestment, etc.

Expectations are that the government will take into consideration the impact of the current ongoing pandemic and focus the budget on the overall growth of the economy.

However, I feel looking at the present scenario and now with the shortage of time in hand, the overall target of disinvestment looks difficult to be met in the current financial year.

Q) Which sectors are likely to grab the limelight in this Budget 2022?

A) The expectation of the current budget is that the government is set to roll out more supportive schemes for agriculture, the rural economy, micro, small and medium enterprises, and social sectors.

Indian corporates are doing much better than the overall economy. Measures such as a corporate tax-rate cut, Atmanirbhar Bharat and production-linked investment schemes have helped.

We expect these to continue rather than fresh measures for corporates. Supports to laggard sectors such as hospitality or transportation are more likely to be through easily accessible funding. The government is attempting to boost growth through investment rather than consumption.

Q) December MF data was quite encouraging especially from an equity funds perspective. What is the kind of number you foresee for SIP which has already clocked Rs 100bn?

A) From the last 2 years the pandemic has bought about a lot of new players in the markets on the investment side and we witnessed a major allocation of investments in equity, especially via SIP.

Investors have shifted focus to equity and I am positive that investor allocation into the equity market via SIP’s would continue to remain strong.

Q) In terms of valuations how are we placed among the Emerging Markets?

A) India’s economic recovery has been stronger than initially anticipated. The IMF has retained its GDP projections of India in the current fiscal year at 9.5% and 8.5% growth for the next year, retaining the tag of one of the fastest-growing economies.

Globally, the economic recovery continued, but at a slower pace. The global economy is projected to grow at 5.9% in the current year and 4.9 in the next year, a downgrade from the earlier projection.

This downgrade is partly due to the supply chain disruption for the advanced economies in hand with the pandemic disruptions for other nations.

Coming back to the Indian equities, in the last one year, the Indian equity market has been the best performing amongst all major markets of the world.

The Nifty50 rallied 50% and mid-and small-cap indices have done much better, since April 2020, Nifty has gone up nearly 150% and the small-cap indices by nearly 250%.

We witnessed healthy FII inflows which resulted in strong growth in the Indian capital market. The valuation of Indian equities has grown multi-folds in the last decade.

According to Bloomberg data, the MSCI India index trades at an 80% premium to the MSCI EM index, which represents the emerging market (EM) equities.

This is much higher than the long-term average premium of 44%. Indian equities have constantly outperformed its emerging market peers and the valuation premium further improved due to the market returns.

Indian equities, in term of market cap surged to 37% and is further expected to grow at a tremendous rate owing to the higher growth potential and developing technology sector.

Q) What are your top investment themes for 2022 and why?

A) I believe that the asset allocation strategy by any investor should be in accordance with factors such as risk appetite, return expectation, investment horizon and, expected fund in/outflow for that particular investor.

This is the key to a successful portfolio strategy. Once this asset allocation is decided by the investor by an informed, data-driven, and balanced methodology, until and unless there is extremely compelling reasons, investors should not tinker with such allocation.

This, however, does not mean the portfolio should not be rebalanced periodically.

For example, since equities have seriously outperformed all other asset classes in 2020 and 2021, the effective share of equity in the portfolio may have gone well above the planned allocation if the investor was already following actual asset allocation in line with the desired allocation.

In such a situation, if the gaps between the actual and strategically planned allocations are considerable, the investors should consider bridging such gaps.

It is important that portfolio strategy is driven by long-term goals and objectives rather than shorter-term market movements and sentiments.

In our analysis and assessment, this is the best portfolio strategy over the longer term and we would recommend the same for 2022 as well.

Q) Do you think the election outcome will have any bearing on Indian markets?

A) As I mentioned earlier, any specific event has an impact on the equity market on a short-term perspective with the elections being one of them. Short term the markets could witness a knee

We have always witnessed a knee-jerk reaction to any key event, with elections being one of them. However, I do not expect it to have a major long-term impact on the equity markets.

Q) Renewable and EV became popular themes in 2021 – how do you see the trend in 2022 and which companies are likely to benefit from these themes?

A) This sector has been emerging in the last couple of years and has been in focus. This sector I believe requires a lot of R&D and I believe that in 2022 we could witness further growth and play a larger role in the capital market.

This is a very potentially upcoming sector which I believe we need to keep an eye out for same and has tremendous growth opportunities.

(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.)