See a possibility of Nifty hitting 28K this year: YES Securities India ED

The markets could rise another 10-12 per cent from current levels; however, there will be intermittent corrections — even after the Union Budget, predicts AMAR AMBANI, executive director at YES Securities India. In an interview with Sundar Sethuraman in Mumbai, Ambani says that given the government’s robust revenue position, there won’t be any disruptive tax measures in the upcoming Budget. Edited excerpts:

The first half of 2024 has turned out to be good for the equity markets. What are the key takeaways?

Markets are performing well, extending last year’s strong performance. The momentum continues, supported by rising earnings. Despite high interest rates, earnings have shown no signs of slowing down. Earnings across the board have held up well, with some deceleration observed in small and midcaps (SMIDs).

Gross domestic product (GDP) growth numbers also look very promising. If there is a revival in consumption, especially in rural areas, the outlook will improve further.

Additionally, if the economy remains stable at current interest rates, prospects will only brighten with a rate cut.

Do you expect rate cuts in India anytime soon?

Given our inflation situation, the repo rate could be cut even now. However, cutting rates before the US Federal Reserve (Fed) could impact the rupee and foreign portfolio investor flows.

The Fed shows no urgency in cutting rates, maintaining a necessary gap between US and domestic yields. The Reserve Bank of India (RBI) aims for the rupee to stabilise between 83 and 83.5 against the US dollar, preferring gradual appreciation or depreciation.

When do you expect the Fed to cut rates?

The Fed targets inflation at around 2 per cent, but current US inflation levels are far from this goal. High inflation risks due to supply-side disruptions, geopolitical tensions, and protectionist policies persist.

The Fed has a history of moving the goalposts. At some point, the Fed may realise the futility of targeting 2 per cent and its adverse economic impact. They could initiate rate cuts around April or May 2025, following a prolonged period without cuts or occasional cuts.

What’s your outlook for the National Stock Exchange Nifty and SMIDs?

I foresee the possibility of the Nifty reaching 28,000 this year. There may be intermittent corrections lasting a month or two, possibly up to a 10 per cent crack in the Nifty following the sharp upmove. However, any dip would likely see a rebound within one or two months.

Largecaps are expected to have an edge over SMIDs, though high-quality SMIDs should still outperform largecaps.

What are your expectations from the Budget? Do you expect tweaks to the capital market tax structure or other disruptive announcements?

The government has a lot of fiscal deficit room due to RBI payouts and tax buoyancy. Therefore, government capital expenditure as a percentage of GDP will likely continue.

There may be a slight tilt towards populism with measures aimed at reviving rural demand.

Extension of production-linked incentive scheme benefits to component manufacturers and incentives for the port sector are possible.

The long-term capital gains tax may remain unchanged this time, as additional revenue is not an immediate necessity for the government.

How should investors navigate this scenario with elevated valuations across the board?

A correction after the Budget would not alter the market’s underlying structure; we are still in the thick of the bull market. Investors seeking attractive stocks should focus on sectors with growth potential and companies boasting competitive advantages and strong management. Despite rich valuations, holding such stocks for three to five years typically results in big money.

Many stocks have run up ahead of their earnings. Is there value in any pocket?

The broad-based equity rally has been supported by liquidity injections from domestic and foreign investors. The good part is that so many equity fundraises and initial public offerings have been coming our way.

There is enough paper to absorb some of this liquidity. Promoters have also sold a lot of their stake. Otherwise, market valuations will go wild.

While pockets of value exist, identifying them in a liquidity-rich market, predominantly in sectors without growth prospects, remains challenging.

Post-pandemic, there has been a rise in the financialisation of savings, leading to huge domestic inflows. Can these flows be sustained?

Domestic liquidity will not disappear so fast, with growing awareness about financial instruments. Now, there is a clear intent to put money into financial assets. An age group is shifting from fixed-income products to stocks.

And then, of course, there is a younger demographic that has opened dematerialised accounts and jumped into stocks, with or without adequate knowledge. This trend will only reverse if there is a big rout.