Tejas Gutka of Tata Mutual Fund
India's economic recovery from the COVID lows continues at a reasonable pace, feels Tejas Gutka of Tata Mutual Fund. He remains positive on the cyclical sectors like banking, real estate, automobiles, capital goods, building materials and industrials.
Tejas is currently the fund manager for Tata India Tax Savings Fund and Tata Housing Opportunities Fund. In an interview with Moneycontrol, he said that achieving the balance between fiscal prudence and supporting long-term growth, and investments in the economy should be the priority of the Finance Minister in the Union Budget 2023.
On the equity market, Tejas with a diverse experience of over 15 years in the equity and fixed income markets says based on historic market performance and current valuations, it would be safe to say that near term returns would be below long-term average. Edited excerpts:
Do you think the government will not tinker with capital gains tax as well as direct taxes in Budget 2023?
It is difficult to pre-empt government policy changes, and we usually refrain from forecasting on such matters. As far as the budget is concerned, we would be keenly focused on the path to fiscal consolidation and the nature of government expenditure.
If you were the finance minister, what segments you would have prioritized in the current economic environment?
Achieving the balance between fiscal prudence and supporting long-term growth and investments in the economy should be the priority of the Finance Minister. Given India's growth momentum is reasonable at the moment, the focus would be on the path to fiscal consolidation as well as on the nature of government expenditure, as alluded earlier.
Do you think the government will give more importance to fiscal path and target less than 6 percent fiscal deficit for FY24?
Indeed, the government should focus on the fiscal path. Having said that, more than the absolute number, it is the direction and the means to achieve that number that will matter more. Rather than the number this year, the path to the FY26 target will be of more importance.
Do you see the current market consolidation ending in first half of calendar year and the healthy rally resuming in second half of this year?
Markets can never be timed with such precision, and we usually refrain from making such forecasts. We rather look at history. Whenever the long-term valuation indicators like Market Cap/GDP and the gap between bond yields and earning yields have come up to levels where they are currently, history suggests that 1year-forward returns have usually been in single digit (both positive and negative).
Therefore, based on historic market performance and current valuations, it would be safe to say that near term returns would be below long-term average. Already, the last one year returns have come down to a low single digit number, and it seems (based on history) that the best case forward could be a high single digit number (with the worse being a similar drawdown in the markets).
Do you think IT sector will drive the rally?
We have been positive on the cyclical sectors of the economy over the last one year and continue to maintain that view. We believe that the Indian economic recovery from the Covid lows continues at a reasonable pace and therefore remain positive on the cyclical sectors like banking, real estate, automobiles, capital good, building materials, industrials etc.
Are you bullish on the domestic themes over export-oriented themes?
What do you expect from the US Federal Reserve in its February policy meeting? Do you think the rate hike cycle will come to end in current financial year followed by pause?
Given the current macro-economic backdrop as well the commentary from the central bank, it would be reasonable to assume that we are closer to the peak of the interest rate cycle now than earlier.
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