ETMarkets Smart Talk: Final Budget 2024 eyed! IT sector is currently a dark horse: Naveen Kulkarni

In an interview with ETMarkets, Kulkarni said: “The stock markets will likely trend upward in the next six months. The upcoming budget will be a critical factor to watch out for,” Edited excerpts:

The govt is confident of forming the govt for the third consecutive term which is a positive sign for the market. But will it be a smooth ride? What are your views?
The current government’s confidence of staying in power for a third consecutive term is not a significant surprise, as they already have a majority in the lower house of the parliament.Previous coalition governments of 1999, 2004, and 2009 had much fewer seats for the ruling party. None of the governments faced significant challenges in managing their economic agenda.
Therefore, this government is also expected to effectively manage the next five years.

Do you have further corrections in the market or have we bottomed out?
Market levels depend on various factors. The global interest rate cycle has peaked, and some developed economies have started to cut rates. The Indian economy is currently the fastest-growing major economy in the world.These factors provide significant protection to stocks from downside risk. However, stock valuations have increased in recent months, which limits the potential for further gains.

Therefore, if there are no significant systematic risks in the near future, the stock markets will likely trend upward in the next six months. The upcoming budget will be a critical factor to watch out for.

What about policy reforms? Do you see a shift of reforms to welfare politics?
It currently needs to be determined whether economic policy will shift, as it depends on the management involved in making critical decisions.

The policy framework will likely continue if the key personnel remain unchanged. However, if there are significant changes in the cabinet structure, the direction of policymaking could change.

Which sectors are likely to do well in the new regime? FMCG and IT stocks have picked up momentum recently. What are your views?
The IT sector is currently a dark horse, influenced more by the global economic regime than India’s policy framework.

Despite its underperformance over the past two years, the sector could see an improved performance if there is increased visibility on deal wins and execution by the end of the year.

On the other hand, the FMCG sector faces its own challenges in achieving revenue growth. While there may be opportunities in specific stocks due to product launches, seasonality, or input costs, a secular trend of stronger returns for the sector as a whole seems unlikely.

The persistent challenges of slower revenue growth and higher competitive intensity continue to weigh on the sector.

Railways, PSUs, and PSE rose in the run-up to the election outcome. Do you see derating in some of these sectors and how should investors approach them who are already invested?
It is possible that many highly valued companies may experience derating. As a result, investors could consider booking some profit and waiting for better opportunities to re-enter the market.

However, it is important to note that the long-term trends for these sectors are still intact. Therefore, these sectors should always be on investors’ watch lists.

FIIs were net short in the run-up to election results. How are they viewing India for long-term investments? Have you had a chance to speak to some of the FIIs?
It is challenging to predict the behaviour of foreign institutional investors (FIIs) since their composition varies significantly. Only a few funds are dedicated solely to India, while most focus on emerging markets or global opportunities.

These funds consider investment opportunities in various regions, so their allocation can fluctuate between India, China, developed economies, and other factors. However, if Indian equities continue to perform well, FIIs could end the year as net buyers.

Is it time to reshuffle the portfolio? What is the ideal asset allocation one can look at in the 30–40-year age bracket?
It all depends on the current portfolio allocation. Some adjustments are always beneficial, as the market could lean more towards quality and large-cap stocks.

For investors in the 30-40 age bracket, the majority of investments should be in equities and growth strategies, as these have the potential to generate significant long-term returns.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)