Expert View | Budget 2024 to focus on capex, Sensex eyes 90K by year-end: Subhash Chand Aggarwal of SMC Global

Budget 2024: Finance Minister Nirmala Sitharaman is set to unveil the newly elected Modi 3.0 government's first Union Budget 2024 on June 23. The upcoming budget is likely to be an extension of the interim budget presented earlier this year in February 2024; however, industry experts anticipate some announcements on income tax relief for the salaried employees.

The Indian stock market sentiment has turned bullish since June-end, after foreign inflows resumed in India and as investors priced in stability after the Bharatiya Janata Party (BJP)'s return to power. Last week, the Sensex hit its fresh lifetime high of 80,000 in its fastest-ever 10,000-point bull run in a record 58 market sessions. Earlier today, Nifty 50 hit a fresh all-time high of 24,443.60, while the 3-share BSE benchmark achieved a fresh peak of 80,397.17.

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In the current market scenario, Subhash Chand Aggarwal, Chairman and Managing Director of leading domestic brokerage firm SMC Global Securities Ltd, in an interview with Mint's Nikita Prasad, said that the market expects the upcoming budget to be ‘well-balanced’ and focus on capex allocation such as production-linked incentive (PLI) schemes. Aggarwal added that the Sensex eyes 90,000-mark by the end of the year if the current momentum continues.

Edited excerpts from the interview:
 

1.How will the policy announcements of Budget 2024 impact stock markets amid the current bullish sentiments that have been propelling indices to fresh peaks? What are your major expectations from Modi 3.0's first Union Budget?

-Indian stock market made multiple record highs after the formation of the NDA government at the center for the third time in a row in June 2024. The market seems to have appreciated the newly formed government's cabinet allocation, which actually saw no changes in key ministries like finance, defense, and home ministry, indicating supportive policy continuity.

Amid strong domestic growth, improved corporate earnings and easing inflation, the market is expecting a well-balanced Union Budgetaiming at fiscal consolidation on the one hand and with more allocation on capital expenditure boosting manufacturing (incl. PLI), infrastructure, agriculture and its allied services and rural sector on the other.

2.With the recently concluded Lok Sabha election results and upcoming verdicts of Budget 2024, will FII and FPI inflows rise in 2024? What kind of activity by foreign investors do you anticipate this year? Will the US Presidential elections in November impact the sentiment of FIIs/FPIs in any way?

Foreign investors have been selling for a while, but now the trend has reversed. India's strong economy is a big draw. Investors like stable economies with high growth, low inflation, and political stability. Including Indian bonds in a major global index and giving Indian stocks a bigger role are positive signals to foreign investors.

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These changes are expected to bring in billions of dollars. The country's young population, growing cities, and infrastructure projects make it an attractive market for long-term investors. Overall, the outlook for FPI inflows into India is positive. Regarding the US presidential election, its global economic influence makes it a closely watched event, including in India.

A pro-business administration in US leads to bullish trends in emerging markets like India. Given the strategic, economic, and cultural ties between India and US, India expects an administration open to negotiating mutually beneficial trade deals. Policies favouring foreign investments, especially in technology, infrastructure, and energy sectors, are crucial for India, making the US election rhetoric and policies significant for Indian investors.

3.Geopolitical risks arising from the Middle-East conflicts still impact commodity supplies, imports, and the trajectory of crude oil prices. Will Indian markets be resilient to external headwinds in 2024?

India's vulnerability to rising oil prices stems from its reliance on imports, particularly from the Middle East. Geopolitical tensions and the Russia-Ukraine conflict have undeniably pushed crude oil prices, contributing to inflationary pressures and a wider current account deficit. However, India is not without defenses.

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Efforts to diversify oil import sources, build strategic petroleum reserves, and boost domestic production can help mitigate the impact of price spikes. India's robust fundamentals provide a buffer, including economic growth, moderate inflation, and a stable rupee. The success of government policies in managing inflation and deficit, along with the global economic climate, will ultimately determine India's resilience in the face of fluctuating oil prices.

4.Going by the last US Fed policy verdict, Powell-led FOMC may cut interest rates in September. When do you think the RBI will adopt a similar approach this year, and how will markets react to rate cuts?

The Federal Reserve recently held interest rates steady, signaling the end of the tightening cycle. We are expecting an interest rate cut between September and November this year. The RBI might follow a similar approach. India's economic growth story is currently fueled by government capital expenditures, but private investment remains stagnant.

This needs to change for sustainable growth. While inflation has subsided from its peak, rising commodity prices due to the Red Sea crisis threaten to reignite inflation concerns. The RBI faces a dilemma. Maintaining current rates or even raising them could control inflation but hinder growth.

Conversely, a rate cut might boost consumption (which is currently sluggish) but raise concerns about small credit quality. A rate cut could benefit the stock market, especially infrastructure and real estate sectors. However, it could also weaken the rupee by making Indian investments less attractive to foreign investors.

5.Amid the Q1FY25 earnings season, which sectors are you most positive about? Going forward, what are the stocks/sectors investors should focus on in 2024, to eye maximum returns?

Sectors positioned to benefit from a recovering economy could be prioritized. Banking and financial institutions stand to gain from loan growth, while consumer discretionary sectors like automobiles could see a rise in consumer spending. Going forward, sectors like fast moving consumer goods (FMCG), auto and auto components, banks, IT and healthcare are expected to be particularly attractive, offering diversification opportunities for investors.

6.Do you think stock markets will generate similar returns in 2024 as last year? Where do you think Sensex and Nifty 50 levels will reach by the end of 2024?

India's economic growth continues to impress compared to other major economies. The performance is driven by several factors, including reforms across various sectors and a shift in global supply chains. India's economic fundamentals are also solid, with a narrowing trade deficit, high foreign exchange reserves, and a healthy fiscal position. This creates a favourable environment for continued economic expansion.

Inclusion in global bond indexes further strengthens India's appeal as an investment destination. Investment activity is expected to increase, particularly in the latter half of 2024, as global economic conditions improve. However, with strong earnings growth, a long runway for further expansion, and improving capital efficiency, Nifty and Sensex could see upward movement and touch 26,500 and 90,000 levels, respectively.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.