Union Budget may raise Plan spending exposure, cut subsidies

Although the market is expecting the Union Budget to be a reformist one, market upside may be limited in the near term from the valuation perspective, observes Sanjay Dongre, the executive vice-president & fund manager, UTI Mutual Fund. In an interview with Mithun Dasgupta, Dongre says the Budget is expected to hike allocations to plan expenditure substantially while cutting spending on subsidies.

What kind of movement do you expect in the stock markets after the Budget?

The upside in the market is limited in the near term from the valuations perspective. Though the market is expecting the Budget to be a reformist one, higher valuations and poor quarterly earnings may keep the market levels capped at 9,000-9,200 on Nifty in near term

What are your expectations from the Modi government’s second Budget? Will it be reforms-oriented?

The market will be looking for steps on banking sector reforms and capitalisation of PSBs, simplification of tax structure and road map for GST implementation, sticking to fiscal consolidation path, rationalisation and better targeting of fuel, food and fertiliser subsidy, better targeting of existing social schemes, clarity on retrospective taxes and GAAR, and higher allocation to the plan/capital expenditure.

PSBs reported a poor credit offtake in the December quarter. Will credit growth to pick up in next few quarters?

Poor credit offtake is a result of subdued economic growth, deferment of capex cycle and lower working capital needs due to lower commodity prices. These factors are unlikely to change in next two quarters. Also PSBs are facing asset quality deterioration and are unlikely to focus on the loan growth. Hence, these banks may report a poor credit offtake in the near term. As the economy continues to face disinflationary conditions, RBI is expected to cut interest rates further in next six months. Lower interest rates coupled with steps taken to revive the investment cycle, may lead to higher GDP growth in H2FY16. It may lead to a 14-15% loan growth in H2CY15.

What would be your advice to the retail investors?

Retail investors should use corrections to increase their equity allocations. As equities are more volatile compared with other asset classes, the best way to even out such volatility is to invest through SIP (Systematic Investment Plan). Depending on the risk appetite, investors should allocate 75-100% of equity investment to diversified equity funds and 0-25% to midcap/thematic/sector funds.