The economy is doing quite well - Jyoti Jaipuria Founder and MD, Valentis Advisors Pvt Ltd
Markets have of late developed a certain amount of obstinacy. Some would call it bull-headedness. Or if one prefers, simply a bull market. Like an adamant young person, it takes a lot to steer them off the chosen path.
The euphoria post the declaration of the exit poll results on the eve of the last phase of the elections on 1 June, and the subsequent disappointment over the BJP not getting the majority seats on its own, all seem to have been taken by investors in their stride. The Sensex rallied by around 3000 points on the first trading day after the exit polls to mark a then new intra-day high of 76738. The rationale given was that many traders, including the FIIs who had been selling heavily, had turned buyers. The subsequent day, when the actual poll results were way off the exit poll results, the market, after touching an all-time high on 4 June, dropped by as much as 6000 points to an intraday low. Besides the mainline indices, midcap and small-cap indices also dipped, with banks and PSU shares bearing the brunt. Fears were expressed regarding the formation of the cabinet and the way in which the coalition government would function. Headstrong investors, however, remained unrattled and used this rare opportunity to buy heavily, having full faith in their conviction about the long-term prospects.
Investors’ conviction and faith were well rewarded as the market steadied itself once Modi announced his unchanged team, reposing faith in his earlier cabinet ministers. In the last fortnight, the markets continued to create record after record as more and more good news poured in. Investors shrugged off the last vestige of uncertainty, and even those who had strayed off the trail got back with a vengeance. On 19 June, the BSE again made a new 52-week high of 77851.
Post the hopes, tribulations, and reality check of expectation, the market is now gearing up for the next big event, which is the budget. Many analysts are of the opinion that the markets have again run ahead of expectations. There have been many hints about the Modi Government continuing with the policies as far as infrastructure and capital investments are concerned.
Capex and infra push
In his very first cabinet meeting, two important announcements were made. One major announcement related to the building of a new major port in Maharashtra. The Rs76,200 crore project at Vadhavan near Palghar, aims to develop a deep all-weather port. The deep draft greenfield port may be developed as a JV between the Maharashtra Maritime Board (26 per cent) and the Jawaharlal Nehru Port Authority (76 per cent). The execution of the project will be done through a public-private partnership. Besides the announcement for a greenfield port, the first cabinet meeting also cleared two offshore wind energy projects of 500 MW each, one in Gujarat and the other in Tamil Nadu. The total project investment envisaged for these 1 GW projects is around R7,000 crore. Another R600 crore has been earmarked for the upgradation of two ports.
The budget is a short-term phenomenon as the next budget will be presented within eight months - Dharmesh Mehta MD & CEO, DAM Capital Advisors Ltd
The private sector continues to build assets, either organically or inorganically. Adani recently announced the takeover of Penna Cement at an enterprise value of Rs10,220 crore. This will add 14 MT of capacity to the group’s cement companies, ACC-Ambuja. The aim is to cross 100 MT shortly and go up to 130 MT. Adani may well merge all his cement companies into one entity. Holcim had resisted doing the same as both ACC and Ambuja Cement were very strong brands and the culture in both companies was different.
Dalmia Cement recently announced plans to up its cement capacity to 75 MT, also through a mix of organic and inorganic means. The company currently has an installed capacity of 44.5 MTPA with a presence in the East and South, with one plant in Chandrapur, Maharashtra. In FY25, it plans to add another 3 million tonnes with one plant in Assam and another in Bihar. The market cap of Dalmia Bharat is R34,200 crore. This expansion is good news as cement companies usually build in anticipation of an infra-boom over the subsequent 2-4 years.
The key takeaway is that thanks to the substantial dividend from the RBI and record GST collections the government has signalled its intention to invest in infrastructure, which is good news for investors.
There has been a lot of concern expressed over the valuation, which many feel is stretched. The RBI has already indicated that GDP growth in FY25 will be at 7.2 per cent, while that in FY24 will see growth beyond 8 per cent.
Investors are comfortable about the budget. No negatives are expected – Sudip Bandopadyay Chairman, Inditrade Capital Ltd
“The economy is doing quite well,” agrees Jyoti Jaipuria, founder and MD, Valentis Advisors Pvt Ltd, a PMS company managing around R1,400 crore. “I do not expect to see any radical changes in the budget. The large RBI dividend will be used to fund the social schemes for the poor. The capex thrust will continue.” He adds: “Valuations are, however, not cheap currently. While corporate earnings will continue, we could see a time correction, which will provide a buying opportunity for investors.”
No one is really expecting the budget to present any unpleasant surprises. The finance minister is expected to implement measures to increase disposable income by lowering entry level taxes. The MSP for some of the Kharif crops has been increased to enable more income for farmers. A meeting of the GST Council is also being held to rationalise taxes. GST is a more democratic way of allowing more income in the hands of the poor, especially in food items. The purpose of GST was to reduce prices, but this has not yet brought down overall prices. However, there have been several notable benefits as more dealers are now registered, reducing the amount of cash transactions in the economy. If and when the two big items, petrol and diesel, are brought under GST in consultation with the states, prices may probably go down.
Sudip Bandopadyay, Chairman, Inditrade Capital Ltd says, “Investors are comfortable about the budget. No negatives are expected. Fears about changes in capital gains tax are unfounded. Future trend will depend on good monsoon and distribution of rain and corporate results. There is enough liquidity and buyers seize opportunities, every time there is a dip in the market”
No one is really expecting any issues for raising funds. The IPO market is again gearing up to raise record funds in the next six months.
“The environment is very good. One of the big concerns about election results is over. The budget is a short-term phenomenon as the next budget will be presented within eight months,” says Dharmesh Mehta, MD & CEO, DAM Capital Advisors Ltd. “The India story is intact and money will continue to flow into the country. The IPO pipeline is good as many companies are planning their IPOs. The supply of good quality paper will mean more investors’ funds coming into the markets.” Mehta adds that the issue size will also go up. As against issue sizes varying between Rs500 crore and Rs1,500 crore, forthcoming issues will be between Rs2,000-4,000 crore. Some of the large issues in the offing include Swiggy, Ola Scooters, Afcons, and Hyundai.
The only concern currently is the geopolitical climate. The global metal market largely depends on how China, still regarded as the global manufacturing hub economy, handles the sharp slowdown. A recession in China would see a sharp fall in metal prices, which in turn would spell good news for countries like India. Copper seems to be an exception as it may continue to see growth. More than that, it is the impact on crude prices which may spell good news for India. Given that the US has also started producing more crude, the impact of the Saudi move to delink crude from the US Dollar may well mark the end of petrodollar dominance. It is too early to say if the de-dollarisation will really have an impact globally.
For investors looking at a 2-3-year horizon, this is probably one of the better times to invest. The market at any given time offers opportunities to discerning investors. There could well be a sector rotation with consumption on the rural side taking off following a good monsoon. Hopefully, the monsoon will not play truant this year and its distribution may well favour the country. Many FMCG shares have not been participating in the current boom and they could well come under the radar of investors. PSU shares are evergreen as they are not dependent on any cycles. Given the capex thrust, shares in defence, railways, and capital goods may well find favour with investors. Links to companies’ annual reports are being posted on the exchanges’ websites, and the directors’ reports along with the management discussions will provide a good indication of how the new year will unfold. First-quarter results will also begin to emerge, with most IT companies reporting well before the budget. For cautious investors, it might be prudent to wait until after the event before expanding their investments.