Budget may boost investor confidence, provide mkt triggers: Naveen Kulkarni

The valuations for foreign institutional investors (FIIs) have become reasonable, but their main challenge is the stabilisation of the currency. This could occur soon, and FIIs are likely to turn buyers, says Naveen Kulkarni, chief investment officer at Axis Securities PMS, in an email interview with Sirali Gupta. Edited excerpts:

 

What are your expectations from the upcoming Budget? 

The Budget could provide the next set of triggers for the market and revive investor confidence, which has taken a beating in the last three months. The Budget must be pro-growth, focusing on infrastructure creation while also managing the fiscal deficit. As a result, bond yields will be in focus. However, based on historical trends, we believe that the Budget will continue to emphasise growth and fiscal prudence. Therefore, it will be closely watched, and any positive actions will be viewed very favourably by investors.

 

 

Have you suggested changes to your clients' portfolios during the current downturn? 

Our focus has been on adding quality and growth stocks, as we believe they are likely to outperform the market. Additionally, we are concentrating on asset-heavy companies with strong capabilities, considering that interest rate cuts are unlikely to be significant. We anticipate that the future value of assets is likely to rise faster.

 

How are your clients reacting to the markets, is fresh money for deployment hard to come by now? 

They are currently willing to deploy money, and we are seeing inflows; however, there has been a gradual slowdown due to low investor confidence. Over the last six months, few investors have made profits. As a result, the overall mood in the market is one of caution. Nonetheless, risk appetite is likely to increase, as the market decline has been sharper than expected.

 

What are your contra bets for 2025? 

Consumption as a sector is likely to be the contra bet for 2025 as most operating metrics are out of favour for the sector. Moreover, valuations have become better. As we are seeing signs of pick-up in rural activity, consumption is better placed to deliver consistent returns in 2025.

 

Are there investment opportunities in mid, smallcaps?

 

Valuations have become quite reasonable now in these baskets. Most stocks are now trading below their 200-day moving average (DMA), which has taken them to an oversold zone. Thus, there are a lot of investment opportunities in the space now; however, the focus should be on quality companies backed by strong earnings growth.

 

When do you expect foreign institutional investors (FIIs) to return to Indian shores?

 

The valuations for foreign institutional investors (FIIs) have become reasonable, but their main challenge is the stabilisation of the currency. This could occur soon, and FIIs are likely to turn buyers. India is recognised as one of the best growth markets in the world and is currently experiencing a period of a technical correction. India will continue to be an attractive destination for FIIs, and a turnaround in investor sentiment may happen sooner than anticipated.

 

What has been your reading of India Inc.'s health from Q3 earnings? Do you expect the slowdown to affect Q4 numbers?

 

Earnings for Q3FY25 have been reasonable, and we do not foresee significant cuts to earnings expectations. Most companies have reported earnings that are in line with expectations and have met their anticipated growth targets. Therefore, while Q3FY25 earnings were not outstanding, they were not disappointing either.

 

It is expected that Q4 numbers will improve compared with Q3, although quantifying the rate of improvement at this moment is challenging. Overall, while the earnings environment has been difficult, the peak of the stress seems to have passed.