 "Vikas Khemani, Founder of Carnelian Asset Management & Advisors")
The announcement of Rs 1 trillion in tax savings in the Union Budget is certainly welcome news. However, according to VIKAS KHEMANI, founder of Carnelian Asset Management & Advisors, the rally in consumer stocks may soon lose momentum due to unfavourable valuations and potential market disruptions. In an email interview with Samie Modak, Khemani emphasised that 2025 is a year to manage expectations carefully and to remain disciplined and committed to long-term investment strategies. Edited excerpts:
What are the key takeaways from the market and economic perspective?
This Budget is good and progressive, especially with the cut in personal income tax. It’s great news for the middle class because they’ll have about Rs 1 trillion more in their pockets to spend. The government has chosen the path of fiscal prudence, which is again good, though the market might have expected a bit more loosening on the fiscal side.
Overall, it’s a solid Budget with no negative surprises. It also incorporates numerous reforms aimed at increasing farm incomes and supporting farmers. There are considerable measures in place to assist micro, small and medium enterprises and to boost exports, making this a well-rounded Budget that addresses the diverse needs of the populace.
How does the Budget change the equities outlook?
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Our view on the market remains bullish for the medium to long term. Calendar 2025 is the year to keep expectations low, stay disciplined, and remain invested. With this Budget, the manufacturing sector will continue to perform well. Volatile times are the best to invest in structural opportunities at the right price.
Stocks related to the consumption theme have rallied. Was it a one-off reaction or do they deserve a rerating?
The rally in fast-moving consumer goods stocks following the Budget announcements seems to be more of a short-term reaction. Structurally, many consumption stocks have underperformed in the past five years and might continue on this trajectory due to unfavourable valuations and potential market disruptions. However, consumption remains a compelling story for long-term investment.
Capital expenditure (capex) stocks were disappointing. Any thoughts on the same?
Despite the overall capex spending holding steady at Rs 11.2 trillion, this figure should be viewed positively, as much of the capex spending can happen off the balance sheet through public-private partnerships. The government’s intent is clearly to build world-class infrastructure. The current market pessimism around capex and infrastructure stocks appears exaggerated, presenting what could be an excellent buying opportunity for investors.
Do the sharp correction in the markets from their September highs make valuations attractive? What’s the medium- and long-term outlook?
The recent market corrections have indeed made valuations more attractive, reinforcing our structurally bullish stance on India for the medium to long term. Key sectors such as manufacturing, financials, pharmaceutical, and information technology (IT) are particularly appealing and expected to perform well. Investors should be strategic, taking time to identify and capitalise on these opportunities without rushing.
Do you expect the selling from foreign portfolio investors (FPIs) to continue? What are the factors that will determine foreign flows?
While there has been some moderation in FPI selling, additional fluctuations could occur in response to the recent appreciation of the US dollar. We anticipate a reversal in this trend once rate cuts begin, which should attract FPIs back to Indian markets.
Will domestic liquidity support continue?
We expect domestic liquidity to persistently support the market. This is part of a structural trend where India is projected to see appreciable domestic investment, roughly $2 trillion, over the next 10-12 years.
Which sectors or themes are you bullish and bearish on?
We are bullish on sectors like banking, pharmaceutical, IT, and manufacturing, which are poised for strong performance. Investors should be cautious with sectors surrounded by excessive euphoria, where the risk of overvaluation is high.
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