Please advise me about sectors that are most likely to be affected by phasing out of stimulus measures, if at all, by the finance minister in the Union Budget. Should I reduce my holdings in these sectors before the Budget?
The year 2009 will be remembered for the unprecedented injection of financial stimulus globally to counter the financial crisis. The Indian government, too, did its bit to prevent a precipitous decline in economic growth by cutting duties and injecting liquidity. With several global economies now on the mend, most governments are working to prevent the main side effect of growth and abundant liquidity — inflation. Besides, they also have the task of reducing the unusually-high fiscal deficits. Therefore, 2010 and 2011 may go down in history as years that will witness withdrawal of stimulus. The finance minister and the Reserve Bank of India (RBI) have their tasks well cut out. The finance minister will have to perform a balancing act between encouraging growth and reducing fiscal deficit, while RBI takes steps to contain inflation.
It would be hard to speculate on sectors that could be impacted by the Budget proposals, as most sectors benefited from the largesse last year and several of these might witness partial rollback of duties. There are apprehensions about increase in duties in sectors such as automobiles (notably passenger cars), cement, tobacco and liquor. Since the actual proposals may vary, investors are advised to wait for the Budget proposals before acting.
Do you see more action happening in the sugar sector post Shree Renuka deal? I have read the sector is entering a bullish phase. What is your outlook? Should I concentrate on bellwethers or try some stocks lower down?
The acquisition does not come as a surprise as large sugar companies have been on the prowl for a while. The outlook for the sector is not very encouraging due to expectations of a better cane crop in the current year and the government’s resolve to reduce inflation. Sugar prices have declined after a series of steps by the government. It is expected that prices will correct further before the onset of the next festive season. Hence, investors could consider stocks from other sectors that have a better potential.
There was a lot of talk about infrastructure witnessing momentous growth. I had invested in infrastructure mutual funds. My returns have been quite low compared to equity-diversified funds. Should I withdraw from infra funds and put money in a good equity-diversified fund?
Between diversified funds and sectoral funds, our vote would go for the former, both from risk and returns point of view. Sectoral funds tend to do well till the market sentiment favours the sector. Infrastructure stocks have underperformed stocks in sectors such as metals, automobiles, cement, etc, due to execution issues and/or expensive valuations. Consequently, infrastructure sector funds have underperformed diversified funds. Going forward, while infrastructure as a theme should do well, investors can participate in this theme through a diversified fund. Hence, it is advisable to shift your investments from a sectoral fund to a diversified fund.
Paras Adenwala is Managing Director & Principal Portfolio Manager at Capital Portfolio Advisors
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