Daily Voice | Budget should focus on sectors that create jobs, boost exports to secure 7% growth, says Abhay Agarwal of Piper Serica

Abhay Agarwal is the Founder and Fund Manager at Piper Serica.

Despite the Omicron crisis running riots across the world and interest rates on the rise, the market has given confidence that the probability of the indices hitting a high is higher than a sharp correction.

Apart from corporate earnings, all eyes are now on the Union Budget 2022 that Finance Minister Nirmala Sitharaman will table on February 1. “To ensure the decadal GDP growth rate target of 7 percent per annum, the finance minister will need to focus on creating a virtuous cycle of growth. This will require a focus on industries that are massive generators of employment and exports like textile, chemicals and real estate,” Abhay Agarwal, Founder and Fund Manager at Piper Serica, tells Moneycontrol in an interaction.

Abhay, who has nearly three decades of experience in the equity stock market, is upbeat and hopes to see more investor participation going ahead. Excerpts from the interview:

What’s your take on IT majors after their December quarter earnings?

The results and commentary are quite positive. The results allay the fears that margins will compress because of a sharp increase in salary costs. IT majors have demonstrated that they are able to pass on the costs and still win big contracts. Their size has now made them globally competitive. We are positive that these majors will see secular growth in the foreseeable future without dropping their margins. At the same time, we expect them to distribute cash to shareholders through dividends and buy-backs.

Around half-a-month is left for the Union Budget. Which sectors do you think will attract the maximum attention of the FM?

To ensure the decadal GDP growth rate target of 7 percent per annum, the finance minister (FM) will need to focus on creating a virtuous cycle of growth. This will require a focus on industries that are massive generators of employment and exports like textile, chemicals and real estate.

Education and healthcare will be another two sectors that we expect the FM to focus on. We believe that production-linked incentive (PLI) schemes under the Atma Nirbhar Abhiyaan will see an expansion to cover more sectors especially specialised chemicals, auto ancillaries and advanced electronic components.

Do you think the government will hike the FPI limit in PSU banks?

We doubt this is at the top of the government agenda. It is unlikely that any FPI would like to build a large position in a PSU bank that would breach the existing limit. Nor do we see any strategic international buyer that is looking to acquire a PSU Bank.

The market has gradually been inching towards its record high levels. Do you expect the benchmark indices to hit fresh highs around the Budget?

The market has shown remarkable strength despite the rise in Omicron cases and a rise in interest rates. This gives us the confidence to say that the probability of the indices hitting a high is higher than a sharp correction. We see good flow from domestic investors. The incessant selling from FPIs seen in the last quarter also seems to have subsided. If the flows continue to be strong, there is a high probability of market indices hitting new highs.

Do you think the RBI will hike the reverse repo rate in the forthcoming policy meeting, especially after the Union Budget?

The RBI has already guided that it will bridge the discount between reverse repo and repo rate over a period. With the current level of inflation and abundant liquidity in the system, we expect the RBI to hike the reverse repo rate by 15-25 basis points in the next meeting to bring in closer to the repo rate. This will not be a surprise for the market since the RBI has already been guiding the same. At the same time, we believe that the RBI will wait for the March policy meeting to increase the repo rate, if at all.

Do you think the government will rationalise GST rates across various products and industries in the Budget?

It is doubtful that the Budget will be used as a forum to tweak the rates. That is the job of the rate adjustment committee that meets regularly. At the same time, the government may change some major slabs to show its policy intent towards major industries.

Investors pumped Rs 24,990 crore into equity schemes and SIP contribution jumped to Rs 11,305 crore in December 2021. Do you think the flow would remain strong in 2022 as well?

Barring a hugely negative shock, we expect to continue to see positive flows from domestic investors. The base of investors has grown steadily over the last couple of years as young investors are investing for the first time. Even during the worst of market corrections over the last couple of years, the SIP flows remained positive. This shows that the Indian retail investor is far more disciplined than he is given credit for.

Will the known factors like Fed policy tightening and rate hikes, inflation and COVID still create volatility in the market in 2022?

Markets have climbed the wall-of-worry of the known factors. The Fed has indicated three hikes, inflation is spiking and the world is in the middle of a third wave. Still, the markets are close to all-time highs. This shows that globally there is plenty of liquidity that still looks to enter risk assets. With the COVID wave abating and global economies opening up once again, we expect that volatility will reduce as investors will increase allocations to risk assets and buy any minor dips.

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