Budget 2023 one of the best ever presented; market overreacted to insurance news, says Sunil Damania of MarketsMojo

Sunil Damania, Chief Investment Officer, MarketsMojo, believes that the 2023 Union Budget is one of the best budgets ever presented. In an interview with MintGenie, he suggested that investors should watch out for stock from tourism, IT infrastructure and capital goods sectors after the budget.

While insurance companies have been hit hard by the budget announcements, he believes that the market has been overreacting needlessly. Going ahead, Damania expects the RBI to hike the key interest rate by 25 basis points in the next monetary policy. 

Edited Excerpts:

How will you rate the FY24 Union Budget?

I believe that this is an excellent budget from the finance ministry, especially considering the global events going on, such as the Russia-Ukraine crisis and the Federal Reserve stating that further rate hikes may occur. With the slowdown in the global economy, this budget is a necessary measure by the finance ministry to keep the economy steady. All things considered, this is one of the best budgets presented by the finance ministry.

What worked and what didn’t, in this budget?

The finance ministry has successfully achieved its goal of reducing the fiscal deficit to 6.4%. When last year's budget was presented, there was no Russia-Ukraine issue. Despite this, India could meet its budget deficit target for FY23 of 6.4%. What is really heartening is that the fiscal deficit will further come down to 5.9% for FY2024. The finance minister maintained that India is on the course to taking fiscal deficit to below 4.5 percent by FY2026.

I think one of the biggest highlights of this budget is the government increasing the capex to Rs. 10 lakh crore, which is 3.3% of the GDP. This will put a lot of money into the hands of people and have a compounding effect on the country’s economy. Furthermore, the new tax regime will be beneficial to the middle class, allowing them to save money on taxes and invest in other necessary goods and services. This will ultimately trigger more private sector capex.

Moreover, it has made a strong foundation for India to transition from a “black economy” (from fossil fuels and coals) to a green economy.

Now that the budget is over, what other trends will the market focus on?

We have always maintained that the budget has been a little overhyped in the last couple of years. This is because with the GST Council coming in, the budget has more or less become a policy statement from the government. This has caused the budget to have only a one- or two-day impact on the markets. The market, over the medium to long term, is a function of earnings and liquidity.

We are currently in the midst of earnings season and the results have been good. Although FIIs have been selling, we strongly believe they will soon return, drawn by India's promising growth story. Going forward, the markets will focus on both earnings and the inflows from FIIs.

What are your expectations from the upcoming RBI policy? Any respite in rate hikes seen anytime soon?

We expect the Reserve Bank of India to hike its interest rate by 25 basis points in the next monetary policy. The US Federal Reserve has hinted at further rate hikes, which will also pressure the RBI to follow suit, even though inflation has been low. We might finally receive some respite in the latter half of 2023.

After a massive surge in the previous year, no budget announcement in favor of PSU banks dragged their stocks. Is this a good time to buy PSU banks? Where do you see them heading?

The irony of the situation is that the PSU Bank index dropped during the last budget, yet post budget it has become one of the top-performing sectors. This suggests that we shouldn't give too much precedence to the announcements in the budget but rather focus on the policies and performance of the banks that could generate alpha for the investors.

We have continuously reiterated that some of the PSU banks are running ahead of their fundamentals and thus, are undeserving of the current valuations they are commanding. As a result, there could be a correction in this. Despite this, there are a few PSU banks that we still believe can create wealth for investors.

Technology is the key to success in today's digital world, and some PSU banks are failing to utilize it to its fullest potential, resulting in lower customer satisfaction and retention. 

With the budget announcing insurance premiums over ₹5 lakh will be taxed, what will be the impact on the insurance space?

We do not believe that the announcements in this year's budget will prove to be a game-changer for the insurance sector. While we acknowledge that some insurance companies have taken a hard hit in the stock market, it could present an attractive opportunity for savvy investors.

The government's post-budget presentation clarified that the ₹5-lakh limit is applicable on an annual basis, not throughout the duration of the insurance policy. This reform doesn't appear to have a significant overall impact because very few customers pay ₹5 lakh as an annual premium. Even if someone pays more than ₹5 lakh as a premium, only the amount above ₹5 lakh will come under the tax bracket, and not the entire amount. This is why we believe the market has been overreacting needlessly.

Post the budget, which sectors would you recommend, and which would you stay away from?

Tourism is one sector which we believe should do extremely well, as the government of India has very clearly spelt it out. Moreover, corporate governance will play a vital role in people's selection of companies for their portfolios. IT stands out very clearly as a sector with no history of bad corporate governance, and as such is set to do extremely well. Capital goods and infrastructure firms could do well because the government has earmarked ₹10 lakh crores for capex and is pushing state governments to take advantage of 50-year interest-free loans if capex is completed by FY2024. Centre, as well as state combined capex, is estimated to increase to 4.5% of GDP, spurring growth for infrastructure and capital goods companies.

Where do you see the rupee headed in the next few months? Will it continue trading near its all-time low?

We have seen some appreciation in the rupee in recent times. We believe that the rupee should continue to appreciate from its current level. Thus, we anticipate that by 2023 end, the rupee could possibly appreciate to around 80 levels.