Budget 2024: Capital gain taxation, missed fiscal deficit targets can upset the market, says Amit Goel of Pace 360

Budget 2024: Amit Goel, co-founder and chief global strategist at Pace 360, says that in Budget 2024, the Indian stock market hopes no tinkering with the current capital gains tax structure will occur. Any adverse changes could lead to market volatility and negatively impact investor sentiment. In an interview with Mint, Goel shares his views on what budgetary proposals can disappoint the market and what can trigger a fresh bull run.

Edited excerpts:

Do you see chances of negative surprises in the upcoming Budget?

Potential negative surprises could arise from capital gain taxation, missed fiscal deficit targets, or policy changes that negatively impact specific sectors.

No changes to capital gains tax: A significant concern for investors is the capital gains tax. The stock market hopes no tinkering with the current capital gains tax structure will occur. Any adverse changes could lead to market volatility and negatively impact investor sentiment.

Fiscal deficit: The fiscal deficit is forecasted to be 5.1 per cent of GDP in 2024-25, with an aim to reduce it below 4.5 per cent by FY26; that is also anticipated to improve India's sovereign credit rating and economic standing, which is important to bring down the cost of financing in India.

A hallmark of this government is its commitment to fiscal discipline. Any deviation from this path of fiscal consolidation and further efforts will discourage economic growth.

What budgetary proposals can trigger a fresh bull run in the market?

Budget proposals that could spark a bull run typically include reforms favourable to specific sectors like infrastructure, healthcare, technology, or renewable energy.

Tax incentives, increased spending on infrastructure projects, or policies supporting economic growth and employment could boost investor sentiment.

Any indication of fiscal prudence while supporting growth can also be positively received by the markets.

How to navigate the post-Budget market? What sectors should one bet on?

After the Budget, sectors that traditionally benefit include infrastructure, defence (especially with reforms), consumer goods (with tax reliefs or consumption incentives), and sectors aligned with government initiatives like healthcare, renewable energy, and digital infrastructure.

How do you see the Q1FY25 earnings of Indian IT companies so far? What is the outlook for the sector for FY25?

Indian IT companies have shown resilience with strong fundamentals in terms of revenue growth, digital transformation services, and cost efficiencies.

The outlook for FY25 generally remains positive, driven by global digital acceleration, cloud adoption, and robust demand for IT services.

Monsoon's progress in July has been impressive. How do you see it impacting the overall economy?

A good monsoon improves agricultural output, leading to higher disposable income and spending power.

This could potentially lead to higher sales of two-wheelers and tractors, which are crucial for the rural market.

It also boosts the demand for consumer goods in rural areas. Investors can consider FMCG companies with a strong rural presence.

A healthy monsoon season boosts crop production, requiring more fertilizers. Fertilizer companies are likely to benefit from increased demand.

Due to a positive monsoon outlook, the government might invest more in rural infrastructure projects. Investors can explore companies involved in rural electrification, irrigation, or roads.

Government policies, initiatives, and spending plans in rural areas can significantly impact these sectors.

Global commodity prices of agricultural products can affect the profit margins of companies in these sectors.

How should investors play the monsoon theme?

Investors can consider sectors directly impacted by the monsoon, such as agriculture (fertilisers, irrigation), rural infrastructure (roads, housing), and consumer goods (especially rural-focused companies).

Investing in stocks of companies with significant exposure to rural markets or agricultural inputs can be a strategy to capitalize on the monsoon's impact.

What would an ideal portfolio look like for the next two to three years?

We would recommend investors should stick to the fundamentals and look for good quality Indian stocks which have a fairly valued price-to-earnings ratio and reasonable valuations for short to medium-term buys.

We are extremely bullish on 30-year Indian government bonds and see them as a great investment opportunity for the next two years.

We have a long-term bullish outlook on gold but do not recommend buying it at current levels.

What's your view on the current market valuation? Is the domestic market heading for a deep correction?

Investors’ portfolios have been significantly overweight in equities, thanks to the glorious bull run. Indian valuations are expensive for ordinary corporate earnings growth.

Indian markets are extremely overvalued and over-stretched. We don’t see this trend to be sustained as Indian equities are the biggest bubble ever in the history of world equity markets.

We advise investors to hold off on making investments until there has been a sizable market correction.

Hence, investors should buy only when the market is deeply oversold and that too for the short term to medium term only.

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Disclaimer: The views and recommendations above are those of the expert, not Mint. We advise investors to consult certified experts before making any investment decisions.