Infra to remain in focus in Budget 2024; overweight on midcaps, smallcaps, says Anil Rego of Right Horizon

Anil Rego, CEO and Fund Manager at Right Horizon, PMS, believes the government will continue its focus on infrastructure to develop ports, airports, railways, and highways in Budget 2024. In an interview with Mint, Rego also shared his views on markets and sectors he is positive about. Edited excerpts:

What are your expectations from Budget 2024 from the market's perspective?

The interim Union Budget will be presented ahead of the General Elections and the full budget will be presented later. 

Since political continuation is expected at a broader level we expect the government to continue its focus on infrastructure to develop ports, airports, railways, and highways, all of which play a pivotal role in advancing the nation's economic development. 

Additionally, investments in renewable energy and initiatives aimed at promoting financial inclusion, supporting growth and development.

Also Read: Budget 2024: Expect no big announcements; market to see stock-specific movements, says Yogesh Patil of LIC Mutual Fund

Do you expect the domestic market to repeat the performance of 2023 in 2024?

Market dynamics are influenced by a multitude of factors such as economic indicators, global events, and investor sentiment, which can change rapidly. 

While we cannot be certain what 2024 holds, we take comfort in relatively stable macro, robust GDP growth, sustained momentum in domestic corporate earnings, healthier corporate balance sheets, and expected interest rate cuts domestically and globally and expect markets to perform well over the next three years.

Also Read: Can Nifty 50 repeat the feat of 2023 in 2024? Experts warn of challenges

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Why are we witnessing a strong surge in mid and small-cap space? What should be our strategy for them?

The mid and small-caps are structurally well-positioned to grow above the industry average backed by supportive policies. 

Further exposure to niche sectors is being looked at in the category that offers opportunities and diversification benefits. 

We are overweight on mid and small-caps considering the structural shifts in the domestic economy that are steering toward the multi-decadal growth outlook of the economy. 

Additionally, the expected rate cuts in 2024 will eventually benefit the mid and small-caps disproportionately.

We now see opportunities granular within specific sectors that are benefiting from structural tailwinds. 

The broader mid and small-cap are at reasonable valuations so we see limited opportunities available at discounts and are of the rationale that quality names are better risk-reward investment opportunities in the current landscape.

Also Read: Top 10 mid cap mutual funds of 2023

Nifty Realty saw strong gains in 2023. Is there more steam left?

The surge in the Nifty Realty rally is primarily driven by significant profits in real estate companies. 

These enterprises have achieved unprecedented residential sales bookings, alleviating apprehensions about the potential negative effects of increasing mortgage rates on demand. 

Moreover, real estate firms are poised for substantial project launches in the second half of the fiscal year 2023-24 (H2FY24).

When can we expect the rate cuts from the Fed and the RBI?

The Reserve Bank of India (RBI) pursued a modest approach to increase interest rates relative to advanced economies. 

The repo rate is currently at 6.50 per cent, which is comparatively low when assessed against historical standards. 

Though Inflation spikes are a risk if tamed durably the economy is likely to sustain a stable growth momentum for a longer period. 

Inflation has been gradually declining but continues to remain above the targeted level, so we expect rates to be on hold and cuts to begin at the end of the fiscal year.

In the US, as the inflation rate shows signs of improvement and the economy remains stable, the Federal Reserve decided to keep its key interest rate unchanged and indicated the possibility of several cuts in 2024.

What themes and sectors are you betting on?

Building Materials Segment: We are optimistic about the building materials Sector due to increased investment towards infrastructure, urbanisation, and a recovery in the housing and commercial real estate markets.

The government has proposed investing heavily in transport infrastructure projects benefitting the real-estate markets across India, especially in tier-2 and tier-3 cities.

Plastic and metal pipes are witnessing robust demand. Commentaries from management are upbeat on the demand outlook on the back of the pickup in real estate, the government’s focus on housing and infrastructure, and industry consolidation. 

Companies are incurring capex aggressively or actively pursuing inorganic growth opportunities to cater to the demand. Paint companies are registering robust demand uptrends.

Banking: The banking space is seeing robust credit growth momentum driven by the continued traction in the retail and SME segments.

On a segmental basis, home loans, auto loans, and credit card outstanding continue to grow, and corporate loans are recovering gradually. 

The corporate segment is gradually recovering, and a pick-up in capex would be crucial to maintaining growth momentum.

The management of companies has also been upbeat about the growth momentum. 

Asset quality is likely to continue to remain healthy. 

In FY23 and the first half of the year (H1FY24), incremental earnings were primarily contributed by the BFSI sector and we expect the banks will be able to deliver healthy earnings growth in the second half of FY24.

Also Read: Market Outlook 2024: What sectors should you bet on in 2024? Here's what 5 experts say

We see a strong influx of retail investors in the domestic market. Many SME IPOs are getting overbought. What is your advice for retail investors?

The surge in IPOs can be attributed to euphoria over the last two years and heightened global confidence in India's resilient economy. 

Investors are placing substantial bets on the promising growth potential of newly listed stocks, anticipating significant upside.

Following a relatively quiet start to 2023, the IPO market has experienced increased activity recently, and given the robust pipeline, this trend is expected to persist. 

However, it is crucial to be cautious when valuations are excessively high, as there is a risk of companies seeking prices that surpass their reasonable valuation levels.

Also Read: Number of BSE-registered investors see a jump of 27% YoY in 2023. What does it mean for the market?

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.