Budget 2024: Govt will continue to incentivise manufacturing and infra, says Nimesh Chandan of Bajaj Finserv AMC

Nimesh Chandan, CIO, Bajaj Finserv Asset Management, believes the government will continue its path to incentivise manufacturing and infrastructure in the upcoming Budget. He added that a lot of clarity has emerged around election outcomes from the recent state election results. This reduces the risk of steep volatility in the markets due to political slugfest as we approach the General Elections. 

Edited excerpts:

What are your expectations from Budget 2024?

We believe the government will continue its path to incentivise manufacturing and infrastructure capex, there could be some announcements to help farmers and boost rural income.

The actual measures can only be unveiled in the full Budget that would be presented after the General Elections by the new government.

How are you analysing the construct of the market right now? Largecaps have been quiet? Why is that?

The recent election outcomes reduced a lot of fog around political stability & policy continuity. The macro data points like GDP, manufacturing & services PMIs, credit growth, and strong GST collections are also indicating strength in the economy. All these things augur well for equity investors. Largecaps have been relatively under performer vs the broader market; some of it can be attributed to the direction of inflows (whether the liquidity is directed towards largecaps, midcaps or smallcaps) & also to the lack of catalysts in some of the index heavyweights. Both these things are course correcting & we believe largecaps should have better participation in the markets from hereon.

What is your sentiment on midcaps and smallcaps? Should investors continue to accumulate?

It is the intensity of the rally in midcaps & smallcaps which is making the investors nervous. It is important to have a heterogenous view on midcaps & smallcaps. Yes, there are pockets of froth building in certain pockets of smallcaps.

In particular, businesses that have not exhibited any great track record are moving up only based on macro stories or the possibility of order wins. However, on the other end of the spectrum, there are good businesses available at fair valuations too. The ratio of largecaps vs midcaps though elevated does not appear to be at extreme end.

What does a perfect model portfolio look like right now? Top three biggest weights one should add?

A perfect model portfolio for a long-term equity investor right now should have constituents that benefit from ‘megatrends’ that are happening around us. These megatrends are changes in technology, regulation, economics, nature, demography & social that are happening around us. Each of these trends can transform businesses environment & the world around us. The endeavour of the model portfolio should be to bet on businesses that benefit from these megatrends. Tactically, the way things are happening around us - it makes sense to focus on domestic stories, both capex-driven & consumption & steer clear of export-oriented businesses which are at risk of slowdown due to a possible recession in the western world.

Are you bullish on the IPO market with so many new issues launching? Should investors buy IPOs in the current environment?

The primary markets have been quite active in the past few months. IPOs, QIPs, strategic investor sale & promoter take sale. We have been very careful on picking up where to participate depending upon merits of the investments & suitability to our fund strategy. Investors should be careful in participating in IPOs, as most of them are priced to perfection & leave very less on the table as listing gains. Further, IPOs inherently carry idiosyncratic risk ( buyers know less than the seller). So overall investors should look at IPOs only after due research.

Do you believe Nifty valuation is fair and risk-reward favourable?

Nifty valuations when looked at relative to history should not be looked at in isolation. There are three important factors one should consider:

1. Earnings growth rates relative to history: If the future growth is expected to be better than history it becomes imperative to factor such an improving growth rate in NIFTY valuations.

2. Expected interest rate environment: Interest rates define the opportunity cost for the investors & inversely related to valuations.

3. Composition of Nifty: The constituents of Nifty have changed over the past few years towards better ROE & better growth companies.

Factoring all the aforesaid, we believe the NIFTY valuations are not in the expensive zone.

Where do you see Nifty headed around elections next year?

As discussed earlier, a lot of clarity has emerged around election outcomes from the recent state election results. This reduces the risk of steep volatility in the markets due to political slugfest as we approach the general elections. But we cannot completely do away with market volatility in the run-up to the general elections. The direction of Nifty will be determined by H2FY24 earnings & actual political mandate in the general elections. A sharp slowdown in the developed economies will remain the joker in the pack.

What trends should investors look out for next year?

In the next year, markets have to fathom multiple political & geopolitical events. These are difficult to predict. General elections, US presidential elections, a possible flareup in the two wars in energy-rich regions & slowdown in the western world is something that the markets need to grapple with.

Why should one buy your recently launched Balanced Advantage Fund? How is it different from other similar MFs?

At Bajaj Finserv AMC, we believe that the equities market is influenced by both fundamental and behavioral factors. Fundamental factors include economic variables (like GDP growth, interest rates, inflation, industrial production, current account deficit, etc.) and corporate aggregates (like revenue outlook, earnings outlook, balance-sheet strength, etc.). The behavioral factors, on the other hand, encompass elements such as investor sentiment, herd mentality, underlying biases, and other similar behavioral aspects. Our BAF model seeks to measure the changes observed in the fundamentals and behavioral aspects of the markets. Based on those broad signals, our model is designed to strategically allocate between equities and debt assets.

Our fund management team monitors fundamental and behavioral elements prevalent in the market, utilising an internally built composite indicator.