Market likely to see some profit booking post Budget, says Deepak Jasani of HDFC Securities; likes oil & gas, metals

Deepak Jasani, Head of Retail Research at HDFC Securities, believes the market will witness some profit booking post the Budget. However, Jasani added that after some correction, in case of no negative news, it will attempt to go higher again. Suggesting a market strategy with the Union Budget in mind, Jasani advised rebalancing holdings towards largecaps and larger midcaps. Some tilt towards value sectors like oil & gas, metals and financials is also recommended, he noted. 

Edited Excerpts:

Which sectors should investors focus on around the Budget?

Historically investors have expected Union Budgets to benefit infrastructure (and its RM metals, cement), agri and rural-focused themes/sectors (fertilisers, seeds, tractors, agrochem, 2W, FMCG, rural infra, etc.), defence, financials (on expectations of fall in interest rate due to fiscal discipline and boost to credit growth), affordable housing, MSME, etc.

This time around similar sectors could be in focus (except defence - as stocks have already run up). However, we may see marginal changes in allocation in most of these sectors compared to the interim Budget (except rural and social welfare focused spends where a higher rise may be seen).

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

Market may, after the initial positive reaction, witness profit taking on the completion of the event. Post this correction, it may again attempt to go higher.

What kind of announcement in the Budget can cap market gains?

Apart from the fact that the markets may any way correct post the event as it has not witnessed any meaningful correction since the end of March, announcements may affect the capital market sentiments adversely (like increasing the period for LTCG tax or hiking the rate of tax on STCG and LTCG or raising STT rates generally or on specific trades) or any deviation from the path of fiscal consolidation or cutback in capex at the cost of revex or raising tax liability of urban rich in some way can cap market gains and result in a sharper correction.

What should a model portfolio look like currently for a moderate-risk long-term investor?

This investor should first relook at his overall asset allocation and correct it if the equity component has risen due to a rise in equity values. Later within equity, he can rebalance his holdings towards largecaps and larger midcaps. Also, sectoral overweights may be corrected. Some tilt towards value sectors like oil & gas, metals and financials may also be recommended.

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

Valuations are currently at the higher end mainly due to the relentless flow of funds from domestic investors and at times from foreigners. Globally India offers the kind of growth and the breadth of listed companies that few countries across the globe can offer. However, one will have to be aware of the fact that the valuation of the broader market is even more expensive while that of Nifty stocks may still have some upside left. One, however, may not be able to predict the exact time of the onset of correction and may end up having exited early if markets continue to do well. Fresh investment at this stage can be done only in a staggered manner.

With the rise in valuations, is this the right time to decrease the weightage of equities and shift to other assets like gold and fixed income?

As discussed above, a review of asset allocation is necessary at regular intervals. Gold should be part of the portfolio (5-10%) more as an inflation and currency hedge rather than for regular returns. Fixed-income investments can be raised on expectations of a cut in interest rates.

Do you see FPI inflows recovering strongly in the remainder of 2024?

Equity inflows from FPIs may rise materially in the balance part of 2024 if the policy announcements from the govt (including the Union Budget) excite them much beyond expectations. Also, an interest rate cut globally may make equities more attractive as an asset class and push some more funds into India.

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

Investors in small and mid-cap stocks look to earn alpha and compound returns and try to spot stocks that can become mid and large-cap stocks over the medium/long term. The robust economic growth leads to the emergence of niche small players who have undergone pain in scaling up and are now set to increase their pace of growth.

Partial profit booking may be advised in some stocks that have run up quite sharply and quote at astronomical valuation so that cash can be raised for deployment in other stocks or to build cash to deploy in times of market weakness.

We expect a correction in the markets post the Union Budget and in such a correction, small and mid-cap stocks may fall more than the largecaps as has been historically seen. However, a few of these stocks may recover well and fast enough later based on their business models and valuation levels. The key is to find out which ones.

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.