“Sectors like banking and financial services that are seeing rapid growth due to continuing finalization of savings and credit growth are likely to continue to be favored sectors,” says Sandeep Bagla, CEO, TRUST Mutual Fund.

In an interview with ETMarkets, Bagla said: “The themes we believe in for the next few years are manufacturing, renewables, digitisation, infrastructure, urbanization, premium consumption, financialization of savings, and the rise of equity savings cult,” Edited excerpts:

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Nifty has run into some turbulence ahead of the Interim Budget 2024. What is weighing on D-Street or is it just profit taking?

Any bull run will see some counter-trend correction from time to time. In a market that has built-in high expectations from the corporate sector performance, there could be a sharp stock price correction if the results are not in line with the projections.

Domestic liquidity is tight, valuations are stretched in pockets and demand growth is a bit patchy.

Do you think Indian markets are trading at a large premium compared to historic averages and peers? In the past, we have seen markets sustain rallies even though they might be overvalued.

The Indian economy is expected to grow at a rate that is significantly faster than other emerging market economies.

Higher growth leads to better corporate profitability, which in turn supports equity prices in the medium term.

India has and is likely to continue trading at a premium valuation as long as growth is expected to continue at a relatively higher pace. It can so happen that at times, market valuations are higher by our historical standards due to market euphoria and the increased risk appetite of the investor community.

What are your expectations from Interim Budget 2024?

Schemes for the rural poor and farmers, food subsidies may see higher allocation as the recovery of the rural economy is still tentative.

Capital expenditure for infrastructure like roads, railways, water, power, and defence is expected to continue to increase.

There may be some tweaking of the slabs for income tax – as a relief to the middle class and to boost consumption.

The government is likely to stick to the path of fiscal consolidation with a target of 4.5% in the next couple of years.

If someone is planning to put in money at current levels – do you think risk-to-reward is favourable? What is the kind of time horizon that one should look at if someone is putting in fresh money?

Equity is an asset class suitable for investors with a long-term holding period horizon. Normally, one should hold equities for 3-5 years to benefit from the growth in the economy and tide over the short-term volatility of the market.

In current market scenarios, investors wanting to invest in small-cap shares should be prepared to hold for longer periods as the valuations are quite stretched by historical standards.

Which sectors are you overweight on for the year 2024?

We are planning to launch our equity schemes in the current quarter. We would be overweight on sectors to benefit from urbanization, premiumization, and expansion in domestic consumption. Sectors like railways, infrastructure, and defence look interesting.

Are there any sectors where structural stories are continuing and why?

The increase in capital spending by the government and a likely pick up in private sector capital expenditure is creating numerous investment opportunities.

Sectors like banking and financial services which are seeing rapid growth due to continuing finalization of savings and credit growth are likely to continue to be favoured sectors.

Select manufacturing companies could continue to perform on the back of PLI schemes and the widening of the production base away from China.

The themes we believe in for the next few years are a) manufacturing, b) renewables, c) digitisation, d) infrastructure, e) urbanization, f) premium consumption, g) financialization of savings, and h) rise of equity savings cult.

We have seen more SME IPOs hitting D-Street so far in 2024 compared to mainboard ones – what could be the possible reason for this? Do you see more SMEs coming on to D-St as an encouraging sign?

The SME platform allows relatively smaller companies to access growth capital from public markets. The spate of issuances could reflect the growth aspiration of smaller companies.

The extent of oversubscription seems to suggest that there is too much money chasing the SME stocks.

We have seen a swift move in railway stocks in the past few weeks. What is driving the rally?

The increased spending in the railway sector by the government has led to renewed investor interest. Strong retail inflows in small and mid-cap mutual fund schemes could have triggered fresh investments into railway stocks as well.

How should one look at the small & midcap stocks? There are mixed views in terms of valuations.

While there are only 150 stocks in the mid-cap space as classified by SEBI, there could be 4000+ stocks that are categorized as small caps.

The size of some of the small caps is quite large, with market capitalization higher than ten thousand crores. The valuation of the index and some individual companies is higher than large caps due to inflows into these funds and the relatively high potential of select companies.

Given India’s growth outlook, rising household incomes, and growing working population, there could be many opportunities in the small-cap stocks with a long-term investment horizon.

However, one should allocate a relatively smaller portion of one’s equity portfolio to small and mid-caps and periodically balance the asset allocation as well.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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