India's New Government Plans 'Historic Steps' in Budget

Riding a bullish trend, both the Sensex and the Nifty rallying in the first half of the year, small and mid caps have remained in favor with strong demand from retail investors. So let's discuss third quarter investment strategy with Shweta Rajani, senior vice president and mutual funds head at Anand Rathi Private Wealth Management. Shweta, thanks so much for joining us today. So yeah, great first half for Indian equities. As we head into the second-half, what's the outlook for you? Is this still a by the dips market? Hello, good morning. Yes, I would say this is a market where it's fairly priced, especially you know the large and small caps segment, mid cap also in pockets. So definitely a market to buy. The upside that we've seen in the first half, we can very much expect that to continue even in you know the forthcoming quarters as well. So fundamentals in place and therefore definitely a buy, I would say. So we've got foreign inflow inflows likely to rise in the next 10 months as well because, of course, on Friday, Indian bonds were included in the JP Morgan Emerging New Market Bond index that might prop up the rupee near historic lows as well. Do you think the RBI might be looking at easing in its next couple of meetings? Yes, So, you know, definitely. You mentioned the inclusion in the JP Morgan Bond index. We're expecting $30 billion to come in because of that inclusion. We've already seen, you know, once the news is out, there have been around $12 billion coming in into the market and that's going to have cascading effects, not just on pushing down the bond yields, but also giving a favorable equity market valuation, giving some comfort to the rupee. So that's definitely a positive and will have, you know, multi effect on various asset classes. So yes, it could mean, you know, RBI looking at rate cuts where but whenever that happens bond he is definitely getting pushed down and equity markets rising to, you know, to that effect because of fund flows coming in. We're seeing some pretty good traction with the large cap stocks. Is that where you see the money rotating now or is this smaller investor passion for small and mid cap stocks likely to continue? So actually, you know, if you look at this, there's actually money flowing in, in all the three segments of large. It's small, but in terms of proportion, there's more money heading towards large cap. That's given because you know, if I'm looking at the three market capitalizations, a large cap is slightly favourably valuable compared to the other two. But you know, if I just look at the monthly money that comes in the form of Sips, which is around ₹21,000 per month, 40% of it approximately gets into large and an equal 3030 is getting into the mid in the small cap space. So, you know, directionally more money going into large, but it doesn't mean that money is not going into the other segments. That's, you know, kind of where the money is heading. Yeah. We've also seen a rapid influx of money heading into thematic and sectoral funds as well. Have you had any concerns about the amount of concentration, the amount of risk that might be building in this area? You know, actually if you look at it, I would not say it's too much of A risk because if you look at various factors in terms of what's the earnings expectation, where the valuation stand it in pockets valuations could be expensive, but it's not, you know, the entire segments overvalue as well as this continuous liquidity flow which is providing at least the short term stability. So I wouldn't talk about it being too risky at this point of time. They've also been a few episodes of corporate governance problems at some mutual funds. Is this something your clients have been raising with you? So yes, because, you know, there's a lot of noise being raised, of course, there will be questions that come. But it also is comforting that you have a city which is closely monitoring, you know, each and every step of what the mutual fund is taking. So it actually gives a certain comfort to clients as well. And if there's anything going wrong, you have a watchdog who's tracking it very closely. And you know, given the current issue, it's been around a week and you've seen only three to 4% of the assets as an outflow. So that is actually easing the clients now that there's not too much of A quality issue with the underlying portfolios. And therefore, you know, they may not be too much to worry about. Plus, you know, the comfort of being in a regulated instrument that is kind of now comforting the clients, I would say, more than concerning them. I just want to get your views on some government policy as well. Because, of course, we've seen an incredibly fast infrastructure build out under Prime Minister Narendra Modi, but seen a few infrastructure failures as well. And over the weekend, of course, we had the partial roof collapse at the new part of New Delhi airport. We've seen similar scenes at two other airports around the countries and four bridges collapsing in Bihar. Do you have a few concerns about the speed and quality of the infrastructure build we've seen so far and are there any risks around that? So you know, given that it's such a huge economy and a lot of infrastructure which has been built up over the years, of course you know it's but national that there could be certain accidents. So, you know, while that is A cause of concern, I would not say it impacts anywhere the trajectory at which we've been growing in terms of infrastructure and the quality. Because if you have negatives, you know, if you have 2-3 negatives, I'd say you have, you know, another 7-8 positives as well. So I don't think it's a deterrent to, you know, governments focus on infrastructure building and that is what is needed also very much today for, you know, the country to progress go to the next stage. So I think in terms of governments focus would continue towards infra, yes, these accidents would only mean that governments focus on the quality also goes up. But yeah, I don't think it will be a deterrent to this speed or the money being allocated towards infra. Yeah, in terms of allocation, we'll, we'll get a few clues very soon because of course the budget is coming up. Do you expect the infrastructure allocation to remain the same or higher or do you see money being spent in other areas as well? So, you know, definitely the focus towards, you know, infrastructure, the capital expenditure that's gone under different segments of infrastructure would continue to be there. We don't see that, you know, to be brought down. Also what's happened is the government I'm sure realizes that social welfare policies is where they've kind of missed out while they would have you know, they have done they've taken certain steps, but there is a lot more missing in that segment to bring down the disparity between rural and growth unemployment in that segment. So we do expect, you know, some of those social welfare policies which could you know, benefit the rural, benefit Agri, you know, bring up employment would definitely get included. But that's also because government has, I would say a buffer in terms of its revenue. You know instead of 1,00,000 crorer, government has got 2,00,000 crore of dividend from RBI. So without having an impact on the CapEx plan, they will have a buffer to also spend money on the social welfare activities or you know those policies. So I think it's going to be a good blend of both these not compromising on infra.