Expert view: Rural India could be a key beneficiary of Budget 2025, says Priyanka Khandelwal of ICICI Prudential AMC
Expert view: Priyanka Khandelwal of ICICI Prudential AMC believes rural India could benefit from Budget 2025 through skill development and welfare schemes.
Expert view: Priyanka Khandelwal, a fund manager at ICICI Prudential AMC, believes rural India could be a major beneficiary of Budget 2025, with welfare schemes likely to focus on improving rural livelihoods, particularly through skill development, employment generation, and women-centric initiatives. She also noted that railways and defence could be other sectors poised to benefit from this Budget. In an interview with LiveMint, Khandelwal shared her insights on the markets, macroeconomic trends, and investment strategies.
Edited excerpts:
What are your expectations from the Budget?
We expect the Budget to favour the masses. The government could reallocate money from the affluent and rich to the middle class and poor to support a more broad-based demand in the economy.
In that context, we believe rural India could be a key beneficiary of this Budget as more welfare schemes could target improving rural livelihoods, particularly skill development, employment, and women-centric schemes.
Railways and defence could be other sectors that could benefit from this Budget.
Should we expect more downtrends in the market? What are the key headwinds?
While the Indian economy is doing fine fundamentally, corporate earnings have been weak for a few quarters as economic activity has slowed. Markets track earnings and flows.
While domestic flows remain strong, selling by foreign investors and disappointment in earnings have resulted in the recent correction.
Geopolitics is key to tracking at this point in time, as it also causes market volatility.
But we need a pick-up in government spending for economic activity to accelerate. After the ongoing correction, there’s a reasonable margin of safety in select large-caps, and the risk-reward there looks selectively favourable.
However, one needs to be cautious about the small and midcap allocations in their portfolio as valuations remain elevated.
Historical returns should not be extrapolated, and one should consider some rejig in their portfolios to make better risk-adjusted returns.
How to navigate current market volatility?
Structurally, India is a good market to invest. So, investments made with a long-term horizon need not be altered.
However, incremental investments need to factor in that market valuations are expensive. Hybrid and multi-asset allocation schemes make more sense at the current juncture.
But for those who have a higher risk appetite and only want to invest in pure equities, flexicap schemes can be evaluated, where the fund manager can take a call on large, mid, and small allocations depending upon the market outlook.
Also, SIPs remain a very good way to keep investing gradually in the long term. Lumpsum investments in risky assets should be avoided at the moment.
What are your key observations from the current macroeconomic trends? Should we be cautious?
We are not seeing broad-based demand growth in the country, which is delaying the intensity of the private capex cycle we should see in India.
Government capex has also slowed down, and that’s hurting non-farm employment.
Hence, despite the policy interventions to accelerate growth in our economy, we’re seeing softness.
The US President's decisions could have a material impact on the global economy.
At the same time, it is crucial to track geopolitics. Hence, one needs to stay cautious in the near term. However, India's long-term structural growth story remains intact.
How has the recent strong influx of retail investors influenced the Indian stock market?
In the last ten years, we have been amazed by the kind of faith that Indian investors have developed in equities and mutual funds.
The mutual fund industry has seen a dream run as far as flows are concerned. Investors have demonstrated incredible risk appetite and have been rewarded by the markets.
A lot of credit goes to a lot of simplified literature that has been put out on offline and online media in the last several years.
The domestic flows have been so strong that in the last few years, in several instances, domestic flows have been able to handle the pullback in foreign flows.
However, many young investors have started to challenge the need for asset allocation because many have not seen a market cycle and often believe that past returns can be mirrored in the future.
However, diversification of risk based on individual needs and long-term goals is extremely crucial at this point in time.
Is retail investors’ reaction to market volatility a key risk?
While earnings and flows drive markets, flows are driven by human biases. Investment biases are hard to avoid, not just for retail investors but also for portfolio managers.
The only difference is that portfolio managers, over time, in most cases, learn to manage their biases better than retail investors. Several old investors have lost faith in the markets after seeing a sharp correction. The truth is, nobody likes to lose money.
Offline and social media have done a phenomenal job of educating investors about long-term equity investments. However, by human nature, it is hard to be counter-cyclical.
We’re seeing that the retail sentiment has taken a pause to gauge the direction of the market from here on, as volatility can be confusing. There have been several instances in the past when retail investors have sold in a volatile or falling market, and flows always remain a key risk in the market.
How has the mutual fund landscape changed for mutual funds and institutional investors in the post-pandemic world?
Except for a few isolated incidents, the market regulator and mutual fund industry have tried to create a very safe and simplified pathway for Indian investors to participate in the India growth story through equity markets.
Technology is another enabler that has bridged the knowledge gap and simplified the process of investing in equities.
The Indian economy picked up well during the pandemic, which has resulted in very broad-based, healthy returns in the Indian market.
Collectively, this has ensured a very pleasant experience for investors to invest in Indian equities, and the faith in equity investments versus other asset classes has increased from where it used to be earlier.
Smaller towns and cities are also showing very heavy interest in equities – so the equity phenomenon is not restricted to metros and tier1 cities alone.
The benefit of this is visible not only for mutual funds but also for companies in the capital market space.
What is your take on rural demand and consumption as a theme?
The rural economy saw weak income growth in the last decade because of heavy dependence on agriculture for employment.
We think Government support plus better visibility on non-farm jobs in the next decade should augur well for rural household incomes and rural consumption.
The broader consumption theme has not done too well in recent times because urban discretionary demand has taken a hit. But GDP growth leads to growth in per capita incomes which augurs well as far as the long term India consumption story is concerned.
What are your views on emerging sectors like AI?
Technological advancements are known to uplift the world. Computers and the internet were considered equally intimidating, but they changed the way the world functioned decades later and ended up becoming a very integral part of our existence. They created more opportunities for humans along the way. AI should be no different. Upskilling and data privacy, however, have become more important now more than ever.
Why should investors consider thematic funds at this time?
Thematic schemes provide exposure to an emerging opportunity for investment, which could either be tactical or structural in nature.
Tactical allocations are good for making short to medium-term returns benefitting from cyclical changes, while structural investments provide exposure to long-term themes such as consumption, innovation, technology, etc.
A contrarian approach to thematic investing really works – buy when something has not done well. Knowing the horizon of your thematic investment is very crucial.
At the current juncture, we think one should participate in only those themes that have underperformed in the past.
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Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.
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