Budget 2024: No profound impact on market; global cues to dictate trends, says Vinod Nair of Geojit Financial Services

Finance Minister Nirmala Sitharaman will unveil the Interim Budget for the financial year 2024-2025 (FY25) on February 1, 2024, ahead of the general elections this year. Being a vote of account, no significant policy announcements are expected in this interim budget. Dalal Street veterans also do not anticipate any major changes in stock market as a result of the budget announcements.

Analysts say that the upcoming pre-election interim budget occurs at a juncture when the overall economic landscape appears stable, which is underpinned by the easing of financial conditions, and robust macroeconomic data. However, D-Street analysts believe that frontline indices Nifty 50 and Sensex are likely to remain volatile on budget day as trading opportunities may be limited.

Also Read: Budget 2024: Govt may announce sops for the middle class, rural segments: Rupen Rajguru of Julius Baer India

Vinod Nair, Head of Research of Geojit Financial Services in an interview to Mint's Nikita Prasad, said that expectations from the Interim Budget 2024 are limited to broad key parameters such as fiscal deficit targets. Nair does not expect any profound impact on market movement post-budget presentation and says that global cues are likely to dictate trends. Here's what Nair expects from the upcoming budget session.

Edited excerpts from the interview:

1. What are your major expectations from Interim Budget 2024 which could likely impact the stock markets in near-term? Will policy announcements impact market movement next month, before the Model Code of Conduct comes into effect?

Key measures will be announced in the final budget, July. For the interim budget, expectations are limited and fixed to broad key parameters like curbing the fiscal deficit to around 5.5 per cent for FY25E from the targeted 5.9 per cent for FY24E. Higher spending is expected to continue for the rural market, schemes for unprivileged society, infrastructure, and affordable housing. 

Since the overall expectations are low, we don’t expect a profound effect on the market. Post the event, the market will follow in tandem to the movement of the global market, and will risk to underperform in the short-term ahead of the national election.

2. With major events lined up this year such as Interim Budget, general elections, and the main budget session in July, will FII and FPI inflows rise in 2024? What kind of activity by foreign investors do you anticipate this year?

Currently, foreign institutional investors are on a risk-off mode, due to the slowdown in the emerging markets economy due to high interest rates, core inflation and above average valuation. Currently, India is undergoing a ripple effect, and this mood is expected to continue in H1CY24. However, there is a high possibility of improvement in the mood during H2. The degree of improvisation will depend on the level of contraction in interest rate, inflation, budget and pick up in high frequency economy data.

Also Read: Budget 2024: Focus on fiscal consolidation for long-term economic stability, expects Sonam Srivastava of Wright Research

3. Geopolitical risks arising from Russia-Ukraine and Israel-Hamas conflicts impacted the trajectory of crude oil prices last year. Will Indian markets be resilient to external headwinds in 2024?

Indeed, geopolitical risk and volatility of crude increased during the year, but it has calmed down due to moderation in Russia-Ukraine and Israel-Hamas war. The ongoing eruption of the Houthi attack on the Red Sea is diverting supplies to a long haul, impacting inventory and cost of operation. 

The Indian economy is highly sensitive to the crude price trend and global risk; however, it has been highly resilient during the session. This is because of proactive measures taken by the Indian government and rapid fall of global hyperinflation as supplies resumed well. We expect moderate impact of the red sea issue because the overall effect on crude is likely to be muted due to lack of demand in a slowing global economy.

4. Going by the last US Fed policy verdict, global central banks may start cutting interest rates from March 2024. When do you think the RBI will adopt a similar approach this year and how will markets react to rate cuts?

Well, the probability of a Fed rate cut in March has reduced drastically due to a strong resilience of the US economy. The economy was able to grow at decent rate, inflation and employment rate are high. The possibility of the first cut has been postponed from March to May 2024. Similarly, RBI is expected to hold rates in H1CY24. This is because of high core inflation, the El Nino effect on food prices and the rural economy. We can expect a 50 to 75 basis points (bps) repo rate cut in H2CY24 based on a normal monsoon, balanced budget and fall in food inflation.

5. Amid the ongoing Q3FY24 earnings season, which sectors are you most positive about? Going forward, what are the sectors investors should focus on in 2024, for eyeing maximum returns?

Q3 results are on a preliminary stage as just above 1/3rd of the results is announced till date. Based on the initial data, the season is healthy and mostly in-line. However, there is a moderation in growth on a QoQ (quarter-on-quarter), which is as expected. 

Good performance is forecast for auto, cement, telecom, NBFCs, industrials, pharma, construction, and engineering sectors with high double-digit growth on a YoY (year-on-year) basis. We believe that this year will be transitory bringing sector wise churching. Sectoral improvement is expected for IT, pharma, fast-moving consumer goods (FMCG), media, chemical and private banks.

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?

We do have a positive view on the equity market, however compared to 2021-23, our expectation is moderate in 2024. Currently we have a base target of 23,600 for Nifty 50, which will translate to 78,000 for Sensex, expecting a return of ~10 per cent. This is because of the slowdown in the global economy, moderation in earnings corporate growth, above average valuation and there are reasonable alternatives (TARA) like corporate debt. Buy on dip and sector wise rotation will be the strategy in 2024-25 to generate above market return.

Also Read: Budget 2024 Expectations: Lower ATF price, income tax to boost India's travel & tourism: Rajesh Magow of MakeMyTrip

Market outlook for 2024 by Geojit Financial Services:

The ongoing global market performance has got highly buoyant in anticipation of deep reduction in interest rate. Concern is that the rally is stretching ahead, caution is warranted as inflation is forecast to stay above average in 2024. 

Positive factors include favourable domestic politics, a contrasting global geopolitical risk, ease in bond yields, and moderated crude prices. Conversely, the El-Nino effect, global economic slowdown, continuation of quantitative tightening and high valuation pose as challenges limiting upsides. RBI has noted that the level of unsecured loans in the domestic financial system is a potential risk.

The large-cap IT companies may benefit from cost optimization and new technological deals, caution is advised in the FMCG sector due to rising food prices. Optimism is expressed towards capital goods, infrastructure, cement, renewables, pharma, and chemicals in the long term while valuations are high. 

Category wise large caps are in a better position compared to mid and small caps due to favourable risk-reward ratio. Earnings growth has been robust while actual stock’s performance has been at low double digit and valuation peers wise are reasonable.

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.