Budget 2024: Govt may lower taxes or boost spending to stimulate consumption, says Aamar Deo Singh of Angel One

With the Budget 2024 set to be announced later today, Aamar Deo Singh, Senior Vice President of Research at Angel One, anticipates that the government might stimulate consumption by either reducing personal taxes or increasing spending on consumer-focused areas. He also observed that many market participants are currently apprehensive, fearing an impending market correction. However, markets may continue with its uptrend till such time. Singh expect some corrections in the latter half of 2024 during the time of the US Presidential Elections in November, he added. Edited Excerpts:

Any specific announcement that you expect from the upcoming budget, or will it be like the interim one?

Firstly, it is very important to understand that the Union Budget is presented for the entire fiscal year while the Interim Budget is just for a couple of months until a new Central Government takes charge. On 1st Feb’24, the Indian Finance Ministry played it very safe by making no major moves in the Interim Budget for FY 2024-25. The budget was mostly focused on announcements and strategies indicating directions and development approach for making India Viksit Bharat by 2047. However, the upcoming Union Budget of India (23rd July’24) will be a very crucial one as it marks the first budget post 2024 General Elections. While BJP continues to be in power, it no longer enjoys a majority on its own thus making this budget the most watched one. It is likely that the government may boost consumption by either lowering personal taxes or increasing spending on consumer-focused areas.

Which sectors do you expect to be impacted the most from the upcoming budget?

The upcoming Union Budget is likely to be focused on infrastructure spending, revival in rural demand, job creation, capital expenditure and consumption. With increased capital expenditure, the government is expected to continue its focus on building infrastructure. This could benefit infrastructure companies who have been bagging consistent order wins from the government, thereby building their order pipeline.

The government is also expected to allocate more funds for rural schemes such as allocating more funds for affordable housing to stimulate consumption while introducing an interest subsidy scheme for urban housing benefiting some of the real estate companies and financial corporations. Not only this, but there could also be some announcements made on the renewable energy sector for providing a better domestic manufacturing ecosystem. With regards to consumption-boosting measures, one can expect tax benefits or tax cuts for middle class and lower-income individuals to boost spending.

With markets continuing on record high, will this continue post budget, or do you see a dip?

Right now, both Sensex and Nifty are trading at their highest levels at 80,502.08 and 24,515.65 respectively. The last major correction that took place was in 2020 during the times of Covid-19. Since then, no major corrections as such have been made. Many market participants are appearing to be apprehensive at the current levels, and fear an impending correction ahead which has made many investors cautious in their risk-taking abilities, the triggers could be global or local. Having said that, markets may continue with its uptrend till such time, however we can expect some corrections in the latter half of 2024 during the time of the US Presidential Elections in November.

Do you believe valuations are expensive or is the time right to invest?

As per a recent investment report, the valuation of the Indian equity market is the highest in the world after the US and Japan. This has caused a lot of concern amongst many citing that current fundamentals do not support the observed growth. After the covid-19 market corrections, both Sensex and Nifty have surged sharply and are trading at their highest levels. It continues to be a liquidity driven rally and that isn’t going to change in the immediate future. Investing with a cautious approach is desirable at current levels.

Where do you see Nifty by year end?

Markets have witnessed a remarkable rally in 2024, with the benchmark indices up by almost 15-16 percent from the recent lows in June post the Lok Sabha election results. If we look at from a historical perspective spanning past 2 decades, a CAGR of almost 15 percent is seen for the benchmark indices, which brings forth the important perspective, that while investing in markets, one should look at from a longer—term perspective as markets are cyclical in nature. The second half of the current year is expected to be eventful as there are state elections in few key states and the US Presidential elections in November, which could have a bearing on the fortune of the markets. Nifty is inching closer towards the 25k mark, and post diwali, we could witness a sharp move.

How should investors position their portfolio for the remainder of the year?

In the latter half of 2024, investors should play safe in taking any risky bets especially around the time of US Presidential Elections 2024 which may bring in a lot of volatile swings across the markets. Also, the ongoing Israel-Gaza conflict, inflationary trends, energy prices, US Fed’s policy towards rate cuts, are some factors that could impact markets globally. So, invest from a long-term perspective.

Do you see FPI inflows recovering post budget?

FPI inflows have witnessed significant volatility over the past couple of years, but the overall inflows are expected to increased over the coming years, as global investors view India as an opportunity to stay invested and generate superior returns when compared to most other companies. India’s growing consumption story coupled with the country being one of the fastest growing economies in the world, further wets the appetite of the FPIs. In June, FPIs purchased Indian equities worthRs 26,565 crore, marking the 2nd highest buying spree of 2024 with the highest being in March, withRs 35,098 crore in inflows. Post Budget, FPI inflows could increase provided the signals emanating from the Budget, are in sync to their expectations.

What are your views on midcaps and small caps? Will the rally continue this year as well?

Valuations are quite expensive, especially in the small-cap and mid-cap equities which have performed remarkably well in the last five years due to solid economic fundamentals, increased retail investor participation, and robust corporate earnings growth. However, currently there is cautious optimism that the valuations in these segments are fairly stretched, which may lead to a more moderate performance in the second half of 2024 & profit-booking as well. Hence it is advised that investors should be selective in their investment approach.

One piece of advice for new investors.

Investors should look at adopting a cautious yet prudent approach towards investing in the markets at current levels and aim at developing a diversified portfolio. Given that building a resilient while at the same time, rewarding portfolio demands discipline and patience as markets will witness both bull phase as well as bear phase, hence investing in tranches or in an SIP mode, is even better. But sticking to quality names and leaders in the respective sectors is more desirable, for wealth creation over the long term. So new investors should not get carried away by any euphoria in the market and learn to manage their emotions while at the same time, also sound practice money-management principles to stay in the game for the long-term.

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.