'2025 is the year to build a portfolio for the future. Focus this year should be on valuations and visible growth.'
Union Budget 2025 seems to have provided a reason for consumption growth in the months ahead.
Jyotivardhan Jaipuria, founder and managing director, Valentis Advisors, tells Puneet Wadhwa/Business Standard that the cut in personal income tax is beyond what the markets expected.
Are the Budget proposals according to your expectations? What are its hits and misses?
Overall, the Budget proposals are as per expectations or slightly better in some respects.
The personal income ax rate cut was beyond what we and the market expected, and will provide a stimulus of 0.3 per cent of GDP.
Secondly, there was no negative in terms of increase in capital gains tax or estate duty, wealth tax etc.
The capital expenditure budget growth of only 10 per cent disappointed the market.
But including grants to states, the increase is 17 per cent, which is healthy.
Overall, it was a good effort given the resources; but could they (the government) have done something more in terms of divestment and privatisation is a question we can continue to ask.
Will the proposals translate into actual consumption if inflation remains sticky? Companies may look to pass on raw material price hikes to consumers then.
Overall, the stimulus is around 0.3 per cent of GDP, which will have a multiplier impact. Secondly, inflation is unlikely to run up sharply with a good crop keeping food prices in check.
Thirdly, given the poor volume growth over the past few years, many consumer companies will be looking for better volume growth and may raise prices only after demand picks up.
What more could have been done for capex?
Given the resources, we were expecting a 12 per cent sort of increase in headline capex, slightly higher than the 10 per cent provided in the budget.
But including grants for capex, the increase in capex budget is 17 per cent.
More critical is whether they actually spend the budgeted amount as they missed that target in fiscal 2024-2025.
Also, the government has announced a series of measures for capex with focus on private-public partnerships and sops for MSMEs.
Are the Budget proposals good enough to bring foreign institutional investors (FIIs) back to India?
The selling by FIIs is a function of three factors. First, the strength of the US dollar, which led to flows moving away from emerging markets to the US.
Over the next few months, a peaking of the dollar index could help reverse this.
Secondly, India was very expensive within the emerging market universe, with valuations trading at an 80 per cent premium on a price-earnings basis to the EM universe.
This gap will narrow with India recently under-performing the EM asset class.
What is the road ahead for markets?
After a stellar run over the past few years, price correction has already been in double digits.
The market will go through a time correction and consolidate for a few months.
This will help make valuations cheaper.
Critical events to watch would be the pace of recovery in India and the policy framework from the US, including tariffs and Fed measures.
Will 2025 be more about capital preservation rather than return generation? If so, what is the investment strategy you suggest?
Investors should temper return expectations for this year compared to what they saw post-COVID-19.
2025 is the year to build a portfolio for the future. Focus this year should be on valuations and visible growth.
Some of the thematic sectors that trade at very high valuations could see some pressure on stock prices.
It is now time to move from playing a T20 to playing a Test match as regards markets.
What is your investment strategy for the next few months?
We have a '3 Us' philosophy where we buy undervalued stocks which are under-owned and under-performing.
One sector that is cheap is banking, and it is probably the only sector trading at below 10-year average valuations.
Secondly, consumer stocks should see a sharp improvement in growth.
We would prefer consumer durables and home improvement plays to consumer staples.
Cement is another sector that has seen poor profitability.
With the sector consolidating, margins can improve.
Lastly, we continue to like the pharma sector as a secular growth play.
Is the worst over for mid and smallcaps?
The mid and smallcap segment has corrected sharply in January after holding up for well in the early part of the correction.
Largecaps may be preferred in the early part of the year due to better valuations, and the fact that they have underperformed sharply.
However, our expectations are that earnings growth will be stronger for the small-and mid-caps.
Corporate earnings have been tepid in the December 2024 quarter and the commentary is cautious. What's your view here?
The first half of FY25 saw earnings growing at 3 per cent. The December quarter will be slightly better with earnings growth likely to be around 6 per cent, which though low is still an improvement over the previous quarter.
The March 2025 quarter could see growth inching closer to double digits as government capex spending and liquidity in the system improves following the Reserve Bank of India's policy measures.
For FY26, we see earnings growth in the 11 to 12 per cent range.
Feature Presentation: Aslam Hunani/Rediff.com
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