Expert View | Budget 2024 to expand PLI; traders must follow staggered investment: Master Capital’s Gurmeet Chawla

The Indian stock market has been on a record-breaking spree in July, driven by optimism about a growth-oriented Union Budget, expectations of healthy April-June quarter earnings for fiscal 2024-25 (Q1FY25) by Indian corporates, and the steady progress of the monsoon.

In the previous session, the 30-share benchmark hit its fresh record high of 80,898.3, and the Nifty 50 scaled a fresh peak of 24,661.25. The Sensex closed 52 points, or 0.06 per cent, higher at 80,716.55, while the Nifty 50 ended at 24,613, up 26 points, or 0.11 per cent. This was also the fresh closing high for both indices.

Most industry experts anticipate some income tax relief for salaried employees and also expect the government to focus on fiscal consolidation and capital expenditure. Finance Minister Nirmala Sitharaman will unveil the newly elected Modi 3.0 government's first Union Budget 2024 on July 23, 2024.

In the current market scenario, Gurmeet Singh Chawla, Director of leading domestic brokerage firm Master Capital Services, said in an interview with Mint's Nikita Prasad that the government is likely to explain the production-linked incentive (PLI) schemes to more sectors, such as real estate and auto. Chawla suggests traders focus on a staggered form of investment and buy on dips on July 23.

Edited excerpts from the interview:

1. The Indian stock market has experienced a historic bull run just weeks ahead of the upcoming Union Budget 2024, while profit-booking keeps coming into play. What kind of impact do you see on Nifty 50 and Sensex from Budget policy announcements?

The focus is on the quarterly results and the approaching Union Budget because they will offer more direction to the domestic equity markets, which are now trading at all-time highs. The forthcoming 2024 Budget will likely include new or expanded PLI schemes that benefit several businesses. 

Policies that promote economic growth are usually eagerly awaited. These policies include increased investment in infrastructure, industrial incentives, and support for key industries like real estate, automobiles, and MSMEs. The budget is anticipated to continue giving building infrastructure—particularly roads, highways, and tunnels—a major priority. These expenditures and incentives are expected to maintain the market's favourable momentum.

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2. Among sectoral indices, how will PSU and defence stocks respond ahead of the budget session? How should investors approach 'Modi stocks' on June 23, which have rallied over 75% since Lok Sabha election results?

Defense: Funding allocations for border infrastructure, modernizing defense, and strengthening internal security measures are essential for maintaining national security and defending the nation's interests. Therefore, various incentives are expected to be announced for the defense sector.

PSU Sector: The railway sector anticipates continued emphasis on electrification, network growth, safety improvements, and modernization. Roads, railroads, ports, and urban infrastructure projects will continue receiving funding. Government initiatives like the National Infrastructure Pipeline (NIP) aim to give PSUs more opportunities in related industries by expanding infrastructure spending.

Due to the ongoing run of the PSU sectors, investors should follow a strategy of staggered investment with buying on dips instead of investing all their funds at a single go. They should also enter only those stocks in these fundamentally good sectors to reduce the overall risk of their portfolio.

3. Coming to broader indices, are mid- and small-cap sectors overvalued? Going ahead, how should investors approach these segments this year, amid SEBI's strict lens? 

India's mid- and small-cap sectors have recently been the subject of increased scrutiny due to possible overvaluation. Concerned about the high prices in these markets, the SEBI has stated that certain equities may be the product of irrational excitement rather than sound fundamentals. 

This circumstance increases the possibility of a market bubble popping and having a big impact on investors. Due to increased regulatory scrutiny of mid-and small-cap stocks, investors are advised to exercise caution and use a diversification strategy to reduce the total risk of their portfolio.

Also Read: Expert View | Budget 2024 to boost domestic cyclicals, traders must avoid knee-jerk reactions: Alchemy’s Alok Agarwal
 

4. The Indian economy has strong macroeconomic fundamentals but what are the key challenges which the RBI will need to tackle in 2024? What are your major expectations from Modi 3.0's first Union Budget, especially for market participants?

The challenges involve lowering inflation by focusing on withdrawing from an accommodative monetary policy stance and maintaining a low fiscal deficit. Substantial funding for infrastructure projects is expected to continue, helping industries including construction, real estate, and logistics. This will probably include adding more industries to the PLIltcg t programs. 

The budget will probably prioritize measures encouraging private investment, such as reducing regulatory burdens and providing financial incentives for capital expenditures in vital industries. The emphasis on job creation, infrastructure development, tax reforms, agricultural subsidies, and sustainable practices demonstrates the government's multipronged strategy for promoting economic growth.

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5. What is your take on long-term capital gains (LTCG) tax? Several market experts have proposed zero LTCG, while others believe it is vital for government revenue. Do you think LTCG should be discontinued to create greater liquidity for investors?

It is important to consider the implications for government revenue and market stability, even if a zero-LTCG tax may improve investor confidence and market liquidity. A more workable alternative might be an adjusted LTCG tax system that compromises these variables, encouraging investment while guaranteeing equitable tax payments and economic stability.

6. Where do you think Sensex and Nifty 50 levels will reach by the end of 2024? Which sectors should traders bet on for eyeing maximum returns in the next one to two years?

The indices are expected to continue the bullish momentum in the long run, given the government’s goal to make India the third-largest economy and the various incentives and expenditures that the government is implementing to achieve that goal. 

Infrastructure: Investments in constructing roads, railroads, ports, and urban infrastructure are expected to continue. By increasing infrastructure spending, government programs like the National Infrastructure Pipeline (NIP) hope to open up possibilities in associated industries.

Also Read: IMF hikes India’s FY25 GDP estimate by 20 bps to 7%; US forecast slashed amid tepid global outlook

Innovation and the Digital Economy: As digital technologies become increasingly important, budgetary allocations may be made to support startups, innovation hubs, cybersecurity measures, digital infrastructure, and the creation of an environment that is favourable to digital entrepreneurship. 

Environment and Renewable Energy: Funding may be provided to projects that support the use of renewable energy sources, sustainable development methods, resource conservation, and the mitigation of climate change.

Defense and Internal Security: Funding allocations for border infrastructure, modernizing defense, and strengthening internal security measures are essential for maintaining national security and defending the nation's interests.

Information Technology (IT): The digital transformation, cloud use, and growing outsourcing from international markets are driving the IT sector's continued success. The need for software development, cybersecurity solutions, and digital services is helping businesses in this industry. 

Real Estate: The country's growing urban population and increasing demand for commercial real estate are expected to benefit India's real estate sector, which will benefit from legislative reforms and regulatory environment improvements. The growing demand from the IT and business process outsourcing (BPO) sectors is expected to cause the market for office space in India to expand.

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.