Gaurav Dua is the Senior VP, Head – Capital Market Strategy & Investments, Sharekhan by BNP Paribas
"The Q3FY23 results season has been quite decent till now. The results have been largely in line with expectations and the management commentary on demand outlook across many sectors is encouraging," Gaurav Dua, Head of Capital Market Strategy at Sharekhan by BNP Paribas, tells Moneycontrol in an interview.
Thus Dua, who has over 20 years of work experience covering equity research, asset management and investment strategy, remains positive on the Indian equity market.
He feels there could be some increase in income tax slabs to provide relief to the middle class and salaried in the Union Budget 2023.
The government is likely to consider 5 key policy measures to support the economy including a higher allocation to capital expenditure, an increase in allocation for production linked incentive (PLI) scheme to select manufacturing segments; and a higher MNGREGA allocation given the sluggish rural economy.
Do you think the government is likely to tweak the tax structure to boost consumption?
There could be some increase in income tax slabs to provide relief to the middle class and salaried in the Union Budget. The revenue impact of the same would not be substantial but could provide feel-good factors to a large section of the population.
Which are the 5 key things the finance minister may focus on to support the economy?
The 5 key policy measures to support the economy are likely to be: 1) Higher allocation to capital expenditure; 2) Increase in allocation for production-linked incentive (PLI) scheme to select manufacturing segments; 3) Higher MNGREGA allocation given the sluggish rural economy; 4) Changes income tax slab to provide relief to the middle class in an inflationary environment; 5) Focus on the monetization of non-core assets of public sector and central government entities to invest in railways and other logistics infrastructure.
Do you expect the government to reduce its divestment target for FY24 as it is already likely to fall short of its FY23 divestment target by a wide margin?
Rather than keep ambitious disinvestment targets, the government might look at increasing the pace of monetisation of non-core assets of public sector and central government entities to boost non-tax revenues this year.
Do you think the FII outflows will continue from India as Asian peers like Taiwan, Korea and China seem to be cheaper compared to India?
The outperformance of the Indian equity market against the MSCI World Index and MSCI Emerging Market Index in 2022 did result in Indian equities looking expensive on a relative basis. However, post opening of the China and rally across equity markets globally in the past few weeks, some of the gap has already been filled up. Second, India remains one of the fastest-growing economies, which is set for a multi-year economic upcycle. Hence, we do not expect the outflows to sustain going ahead.
Do you expect the current financial year to end with double-digit earnings growth? Also, will FY24 see better earnings growth than FY23?
The growth momentum has continued in FY2023 and the year would end with double-digit growth in Nifty aggregate earnings. We expect healthy double-digit earnings growth in FY2025 too. A large part of earnings growth in FY2025 would also be aided by the banking and financial sector along with an uptick in margins in some of the manufacturing companies as the input cost pressure eases out.
Do you think the market is currently adjusting to its corporate earnings growth and is cautious ahead of Budget?
Markets have been in a consolidation phase for the past few months. Despite the aggressive rate hikes in India and the developed world, the markets have done well to hold up around the 18,000 level on Nifty. Also, the Q3 result season has been quite decent till now. The results have been largely in line with expectations and the management commentary on the demand outlook across many sectors is encouraging. Thus, we remain positive on the Indian equity market.
Do you see any possibility of the US Fed holding rates after the February policy meeting? If yes, then will that be great news for technology stocks?
We are close to the end of the rate hike cycle in the US and also in India. And we expect the rate cut cycle to begin by end of the calendar year 2023. However, we remain neutral on IT services since the extent of the slowdown in the US and European economies resulting from the rate hike is still not clear to us. Moreover, the IT services stocks are still trading at a premium to 5-year average valuation multiples even after the correction seen in the year 2022. We suggest a selective approach in the IT services space with our preferred picks Infosys, Persistent Systems and Coforge.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
