Budget 2024 may have some populist measures; growth to moderate in 2024, says Gautam Duggad of Motilal Oswal

Gautam Duggad, Head of Research- Institutional Equities at Motilal Oswal Financial Services believes the government may announce some populist measures for the farmers and middle class in the Budget 2024, given the impending general elections. In an interview with Mint, Duggad said the escalation of ongoing geopolitical tensions, delay in rural recovery and overall consumer demand are the key challenges for the markets in 2024. Edited excerpts:

What are your expectations for Budget 2024? What measures can give further impetus to the economy? What will the market look for in Budget 2024?

We expect the Government of India (GoI) to continue on its fiscal consolidation path, likely announcing to narrow its fiscal deficit by 70bps to 5.2 per cent of GDP in FY25, from 5.9 per cent in FY24.

The GoI may announce some populist measures for the farmers and middle class given the impending general elections in April/May 2024. Although a strong win in the recent elections has reduced the probability of doing too much, something on these lines could still be announced.

The market will be looking for any tax-related measures, with the potential to help boost consumption spending. It will also be looking for fiscal capex growth, which has been very strong in the past three to four years.

How do you see the market performance in 2023? What went well, what were the key drags?

2023 was marked as another year of high volatility led by geological tensions and a sharp rise in global interest rates. 

However, the year is set to end on a strong note with expectations of global interest rates having peaked, moderating inflation, correction in crude oil prices, buoyant corporate earnings, positive FIIs (foreign institutional investors) flows and expectations of continued political stability. 

The domestic equity flows remained resilient with a gradual build-up in the SIP book.

The year saw sharp outperformance of mid and small cap versus the large caps due to high retail participation, earnings in the broader market strengthening and government capex cycle picking up. 

As financials continue to drive up earnings, underperformers of the past many years such as automobile, real estate, capital goods, PSUs, industrials, and defence made a strong comeback. Large caps underperformed relatively.

What are the key challenges for our market in the year 2024?

Stickiness of US inflation and strength in the US economy, may lead to the risk of interest rates remaining higher for longer and delay rate cuts. 

Also, the escalation of ongoing geopolitical tensions and delay in rural recovery and overall consumer demand are the key challenges in 2024.

What sectors should retail investors bet on in 2024?

Sectors delivering strong earnings would continue to remain attractive. 

We remain overweight on financials, discretionary consumption, industrials, real estate, auto and healthcare. 

Domestic cyclicals plus manufacturing and capex/industrial themes should continue to do well in 2024, in our view.

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The US Fed and the RBI are expected to start cutting rates from mid-2024 but the market might have already discounted it. Will rate cuts boost the market or not?

Rate cuts will improve the sentiments for equities as they play a crucial role in determining the valuations. 

We don’t think the markets have already discounted it as there is far too much uncertainty on the timing and quantum of rate cuts. 

The timing and quantum of rate cuts will be very important in our view.

What is your outlook on domestic inflation and growth in 2024?

We expect growth to moderate in 2024, which makes us believe that inflation won’t be a primary worry. 

After surprising on the upside for the second consecutive year in FY24, we expect private and government consumption growth to moderate, as the government will continue on its fiscal consolidation path (expect the fiscal deficit to be down by 60-70bps to 5.2 per cent of GDP in FY25) and the consumers will likely re-build their savings, which will also be supported by the regulators’ attempts to restrict unsecured (consumption-related) loan growth. 

With likely headwinds from the global economy, we don’t expect a strong revival in private investments to offset weak consumption growth. 

Thus, we see a moderation in real GDP growth towards 5.5 per cent in FY25, from our expectation of 6.6 per cent growth in FY24.

In line with our forecast of weak consumption growth, we see inflation also remaining contained in FY25 at around 5 per cent next year, from nearly 5.5 per cent this year.

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Disclaimer: The views and recommendations above are those of individual analysts, experts and broking companies, not of Mint. We advise investors to check with certified experts before making any investment decisions.