As the Union Budget 2024 is set to be tabled on 23rd of July 2024, market participants are keenly analyzing potential impacts on their investment strategies. LiveMint connected with Hemant Sood, the managing director (MD) of Findoc, for his insights on the anticipated Budget and its possible implications for the stock market.

Edited excerpts:

What is the market expecting from the Budget?

The market generally expects a balanced approach from the Budget that ensures sustainable and inclusive growth.

Key focus areas will include fiscal consolidation, increased capex spending, and targeted social welfare programs. Focusing on these areas will help the government address short-term economic challenges and long-term growth prospects, creating a favourable environment for market participants.

Focusing on fiscal consolidation will help reduce budget deficits and stabilise the economy, while increased capex spending will stimulate economic growth and infrastructure development.

On the same lines, implementing targeted social welfare programs will improve social equity and support vulnerable populations.

There is also speculation about possible incentives for income taxpayers, MSME sector support, and measures to boost the agricultural sector.

Should we change our investment strategy in the run-up to the Union Budget?

While it is tempting to make adjustments based on Budget expectations, long-term investors should remain cautious.

Historically, the Union Budget has not been a reliable predictor of annual returns.

According to Capitalmind data, the top 500 companies in India provided a median return of -0.1 per cent across 24 Budget days. This indicates that the Budget has little to no effect on stock performance in the long term, and the market is all about the long term.

So, instead, I would suggest investors focus on the underlying fundamentals of their investments.

Apart from the basics such as diversification, strong balance sheets, consistent earnings growth, and a solid management team, recently, a shift has been witnessed towards ESG (environmental, social, and governance) criteria.

So, not only do you need to evaluate the potential financial ROI (return on investments), but you also need to examine how the company is faring on ESG compliance.

It is also important to stay informed about industry trends and economic conditions and to remain patient and disciplined in your investment strategy.

What sectors may see renewed interest after the Budget?

We anticipate sectors like affordable housing, industrials, engineering, and consumer goods will benefit from the Budget, thanks to increased capital expenditure, targeted social welfare programs, and specific incentives to boost infrastructure and consumer spending.

Plus, initiatives to attract foreign-domiciled startups to India and incentives for the MSME sector could drive growth in these areas.

It will fuel innovation, create jobs, and strengthen the overall economic landscape by fostering a more dynamic and competitive business environment.

What will be the key triggers for the market after the Budget?

I think the key triggers for the post-budget market will include fiscal deficit targets, government spending plans, and any new tax policies.

NDA 3.0 seems to prioritize economic stability and promote inclusive growth, which can only be achieved by focusing on fiscal consolidation, enhancing infrastructure, and providing targeted social welfare.

I suggest investors closely watch for specific measures aimed at boosting economic growth and infrastructure development.

Is chasing value a bad idea in this market?

Chasing value is seeking undervalued stocks to capitalise on their potential appreciation.

It is not inherently wrong, but what leads to setbacks is buying based on short-term trends without thorough analysis.

What people tend to do is get swayed by market hype, which is a recipe for disaster.

It leads to poor investment decisions and potential losses.

I suggest investors discern companies with strong fundamentals and sustainable growth prospects and avoid speculative bets based solely on short-term events such as Budget announcements.

How long will this outperformance of mid and small-caps continue?

Mid and small-caps are inherently more volatile and riskier. They have lower liquidity and are more sensitive to market fluctuations.

I am sensitive because smaller companies often have less diversified business models and are more affected by changes in the economic environment.

Therefore, their outperformance, despite being notable, may not be sustainable indefinitely as they are evidently susceptible to market volatility and economic downturns.

What is more concerning is that their valuations can become stretched, making them vulnerable to corrections.

Hence, investors should be cautious of these companies, be prepared for potential volatility, and consider rebalancing their portfolios to mitigate risks.

Our markets are at a record high, the IPO market is booming, and gold prices are up. What is fuelling this extreme optimism?

Several factors are driving this optimism. These include strong corporate earnings, positive economic indicators, and robust liquidity in the market.

Investor confidence has been bolstered by the government’s commitment to economic reforms.

Do you have a word of caution for investors?

While the current market sentiment is positive, investors should remain vigilant.

Avoiding impulsive decisions that are based on short-term market movements is important.

It is imperative to stick to a long-term investment strategy and keep your financial goals in mind.

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Disclaimer: The views and recommendations above are those of the expert, not Mint. We advise investors to consult certified experts before making any investment decisions.