Anirudh Garg, Partner and Fund Manager at INVAsset, PMS, believes that Budget 2024 may not bring significant changes to the stock market and investors, but any significant announcement will recorded and considered for its potential impact. In an interview with Mint, Garg said this year’s market drivers appear to be mainly focused on political events and economic policy. Edited excerpt:
What are your expectations for the 2024 budget? Will it be a pro-growth or populist budget ahead of the 2024 general election? Which budget announcements will be important from a market perspective? Expectations for the 2024 budget appear to hinge on the belief that it will not have a significant impact given its proximity to an election year.
Instead, the focus is on analysis of the February 2023 budget, which prioritizes capital expenditure (capex) over popular measures aimed at attracting voters.
Last year’s budget allocated 19.5% of spending to capital expenditure, the highest in two decades, demonstrating the government’s long-term planning approach.
This strategy is considered crucial to a country’s prosperity, as capital investments generate returns over longer periods of time, unlike short-term, immediate benefits from revenue spending.
The argument goes that investing in long-term assets, just like a family invests in a business for future income, is essential for a developing country like India. The government’s clear focus on improving infrastructure and sectors such as roads, railways, defense and airports are seen as vital to India’s growth from two trillion to ten trillion dollars.
While the current budget may not bring significant changes to the stock market and investors, any important announcements will still be noted and considered based on their potential impact.
Most of the active products have been marketed. What is the next trigger for the market? Market triggers this year appear to be mainly focused on political events and economic policy. First, the 2024 general elections and the current government’s expected victories in key Indian states will be priced in the market.
However, the actual result, especially the majority that the BJP can secure victory, is still expected to matter to markets.
Additionally, the Federal Reserve’s stance on inflation and interest rates is considered a deciding factor.
If the Fed continues to manage inflation effectively, interest rate adjustments may not have a major impact on the market. Conversely, any change in this position can act as a trigger. The US election scheduled for later this year is also expected to play an important role.
As the political landscape evolves, the political changes and economic directives that accompany a new administration can cause market volatility.
The advice emphasizes the understanding that markets are forward-looking and tend to price in response to anticipated outcomes rather than reacting to current events.
Therefore, the market may perform better in anticipation of a positive event and may react less when that event occurs.
Investors are advised not to be swayed by market price increases following positive developments and should focus on opportunities during times of uncertainty or volatility. The recommended strategy is to “buy on dips,” that is, buy when prices are low in anticipation of future profits.
This year is expected to be characterized by high volatility due to several key upcoming events, suggesting a cautious and strategic investment approach.
Do you think the market will have similar returns to last year? In 2023, Nifty 50 witnessed impressive growth of over 20%, proving its resilience and potential. Over the past three, four and five years, our compound annual growth rate (CAGR) has consistently exceeded 15%. However, it is essential to acknowledge that the Nifty’s long-term historical average has typically been between 11 and 13%.
Assessing current market conditions, we believe that the market is entering a high price zone. This doesn’t mean opportunities to generate alpha will disappear, but they may not reach the levels seen in 2023.
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