In an interview with ETMarkets, Sarkar who has over 15 years of experience in the capital markets said: “I would be more keen on a post-budget sustained up move once the uncertainties around taxes and capex announcements are behind us in the budget,” Edited excerpts:
The new year started off on a muted note amid weak global cues. But, benchmark indices have managed to hold on to crucial support levels. Do you think a pre-Budget rally is in place?
I think we are heading into this year’s budget with both hopes and fears. Hopes revolve around major announcements that would be driving the domestic CAPEX cycle which would be driving both income and job creation.
Fears revolve around changes to capital gain taxes in the budget which to some extent is keeping sentiments on the edge and fresh incremental money is waiting on side-lines.
Considering that crucial index levels have been held so far and India’s VIX is quite low levels, it gives some comfort that chances of some pre-budget rally are quite high.
However, I would be keen on a post-budget sustained upmove once the uncertainties around taxes and CAPEX announcements are behind us in the budget.
What are your expectations from Budget 2023?
This being the last full budget before the elections in 2024, the government would be on the front foot on reforms and pushing for growth in the economy across sectors.I believe that the budget would have a two-pronged focus. One would be on increasing household income for the middle-class and lower-income groups.
The Second focus would be to take India into the next stage of growth into becoming a $5 trillion economy over the next 4-5 years. With regard to increasing household income, I believe this could see again a two-pronged approach.
One would be to increase the Direct Tax exemption slabs for the middle class thereby increasing the disposable income in their hands. The second would be to provide more tax relief with regard to home loans and 80C investment benefits.
Coming to the second key focus area for the budget with regard to taking India into achieving the $5 trillion target, I feel government would front end capital expenditure and infra spends in order to build capital assets and at the same time also address job creation goals for the government.
Also further incentivizing domestic manufacturing through incentives could be seen coming up in the budget.
From an equity investor’s perspective, I think a major thing to look out for would be a changed to the LTCG tax rate or tenure of holding for equity. Either of the two could be tinkered with to bring more parity with the taxation of other asset classes.
Which sectors are likely to be in limelight in Budget 2023?
Capex and manufacturing-related sectors would be in focus. Defense, Capital goods, Cement, Road infrastructure and Railways would be key sectors to be in limelight.
Which sectors will lead markets in 2023 – will the winners of 2022 continue to dominate market action in the new year?
The sectors which drove the markets in 2022 were Banking, Energy & Utilities, Capital goods, and Autos. I am of the view that with capex-driven economic activity in focus, this sectoral gainers would not be very different in 2023.
With rising credit growth Banks and Financials could continue to lead from the front. The drags of 2022, namely IT and Pharma, though attractive on valuations, I feel have some time before they would be out of the woods.
What do you make of the December quarter results from the IT sector? What is your pecking order?
The slowdown concerns in Europe and America which is leading to job cuts in those markets is having an impact on Indian IT companies and we continue to see weakness in new deal wins for most IT companies.
Margins have shown some signs of improvement among the names which have already reported their earnings. Also, attrition rates have rationalised to the long-term average from the peaks seen in the previous four quarters.
Guidance has more or less been maintained for all the companies so far. I expect a time correction and further valuation de-rating happening in the sector and don’t see any major price corrections from here on in the near term.
Where is the smart money moving in 2023? Have you spotted any early trends?
After a lackluster 2022 for equities and with rising interest rates and near-term uncertainties around earnings in Q3 and budget expectations, a lot of money is finding its way into Debt funds and Fixed Deposits till concerns on the global slowdown and weakness in domestic earnings don’t fade away.
However, I would say 2023 would be a year where good-quality midcaps and smallcaps would outperform the broader market.
Also, value stocks would outperform growth stocks this year as cyclicals would be back in favour in this year owing to the CAPEX recovery being seen not just in India but rest of the world too.
Which sectors are you overweight and underweight on in 2023?
In line with my above view on the market and economy, we have entered 2023 with overweight allocations in Banking & Financials, Industrials, Defence, Energy, Cement, and Autos. We remain underweight on Technology, Pharma & healthcare, and Chemicals.
What do you make of the huge SIPs coming into MFs which have now consistently hovered above Rs 13000 cr. There is a lot which has to unfold for Indian equity markets. What are your views?
Indian households have shown a massive acceptance towards equity as an asset class and that has led to a significant jump in new demat accounts and mutual fund folios opening up in the last 3 years.
The encouraging part is that SIPs in mutual funds have been steady and growing. Though there has been some stoppage of SIPs in the near month but the quantum remains a healthy 13000 cr plus and this is only bound to increase with years ahead as India remains an under-invested country when it comes to equity as an asset class in household savings.
In the next three years India’s equity participation would enter double digit % from the current 6%
How should one be playing the small & midcap theme in 2023? We have seen most flows coming into this category.
Most midcaps and smallcaps have seen consolidation in 2022 and have given flat to negative returns during the last year. However, many of these companies have emerged stronger and have shown resilience in their earnings.
My belief is that 2023 would be the year where smallcaps and midcaps would outperform the broader market.
But a word of caution over here is required. Investors should not get carried away into buying smallcaps and microcaps with poor fundamentals. Quality of business and earnings should be paramount in the selection criteria.
If someone plans to put Rs 10L now in 2023 – does it make sense to go all in or via the SIP route?
No one has ever got the timing right in the market, and it’s a futile exercise to wait and time the market.
My recommendation would be to do a SIP over the next two quarters as then this time frame would capture the events surrounding Q3 and Q4 earnings of FY2023 and also the budget event.
I do not foresee a runaway rally in the market that one needs to hurry to invest all at one go currently. Valuations are neither cheap nor expensive so there seems no rush to buy or to delay investing. A SIP would be the right mode.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)