The Union Budget 2021 helped fuel Dalal Street to 9% rally in the preceding week, and the benchmark indices continued to trade close to fresh all-time highs. Diving into the fine-print of Nirmala Sitharaman’s third spending budget, Yogesh Patil, Fund Manager – Equity, LIC Mutual Fund tells Kshitij Bhargava of TheSpuzz Online, exactly where he sees possibilities now. Patil explains how investors really should look at valuations and discusses positive triggers for PSU banks following the Budget. Here are the edited excerpts.
What sectors look the most desirable to you post the spending budget?
The Budget was a clear adjust in Government stance from fiscal conservatism to development orientation. Spending priorities have been realigned, involving more capital expenditure in social and physical infrastructure to increase productivity and job creation. Capital outlay towards the infrastructure sector (which includes IEBR – internal and further-budgetary resource) has been 20% larger than the pre-Covid run-price which is encouraging. The extra allocation of fertiliser subsidy of Rs 65,000 crore is most likely to clear previous dues of the sector. We think enhance to sectors like agriculture, infrastructure and consumption would drive development going forward.
Will infrastructure be a massive theme to be played in the next handful of months now?
Infrastructure got substantial concentrate in the spending budget with the coverage becoming broad-based, across road, rail, shipping, energy to name a handful of. When infrastructure sees an uptick it has a multiplier impact in the economy spurring financial development. We welcome this move of capex-led development which would kickstart the investment cycle and could then spread to various sectors – Cement, Auto, BFSI, Metals, and Capital Goods. While we refrain from commenting on stock-distinct tips, enterprises which are scalable, getting a clear competitive benefit and capital efficiency would be exactly where our concentrate will remain.
Banks look robust following the Union Budget is it the time to now closely watch PSU banks?
Proposal to set up an Asset Reconstruction Company (ARC) & Asset Management Company (AMC) to consolidate and take more than the current stressed debt of public sector banks will enable clean up their books, which have higher levels of provisioning on their stressed assets, which had been produced more than the final couple of years. Overall, this will enable PSU Banks concentrate on funding new development at the margin.
What adverse triggers do you spot for equity markets post the Union Budget?
Abnormally higher levels of net marketplace borrowing programme (Rs12trn) could lead to stress on bond yields. Furthermore, divestment targets are nevertheless aggressive. We will need to watch out if this is achievable this year, in contrast to the previous handful of years.
Valuations have been a be concerned for some investors how really should they look at higher valuations correct now?
Firstly, we would like to advise investors to take consideration away from index levels. An investor really should have clarity about the investment objective in terms of time horizon, distinct economic objectives to be met. It really should be complemented with their understanding of exactly where they stand on danger-taking capability and appetite. This will give clarity about how an person can strategy optimal asset allocation.
Only following undertaking the above physical exercise one really should look at investing savings into person stocks. Asset allocation is the most vital issue in figuring out the investment outcome. For person stocks, we would keep away from becoming simplistic. One really should not adjust the investment philosophy based on index levels. Sticking to your asset allocations and disciplined investment course of action is crucial to keep away from taking undue dangers beyond danger appetite.