'Tax relief for the middle class will be a big positive for the markets'

Nifty is comfortably trading at 15-year average PE of 19.2x. As long as valuations are not frothy in large caps, there's not much to worry about, said Siddharth Vora of Prabhudas Lilladher

All eyes are now on the budget proposals that are likely to show the policy intent of the newly formed central government. SIDDHARTH VORA, head of quant investment strategy and fund manager at Prabhudas Lilladher Asset Management, tells Nikita Vashishtin an email interview that as there is no major systemic risk visible for Indian equities in the near-term, investors should shift focus from momentum to value and quality. Edited excerpts:

After the post-election consolidation, do you expect a pre-Budget market rally in July?

Like every budget, this time, too, there is chatter around tinkering with the long-term capital gains (LTCG) tax. Investors may not want to jump into the markets at this time until there is clarity on this front. Moreover, there are expectations of some populist measures, which could impact the fiscal deficit. All these factors need to be assessed, and smart money will be on the sidelines until then. Thus, I expect the markets to be range-bound ahead of the upcoming Budget session. However, looking ahead to the entirety of FY25, the outlook appears promising with policy continuity, political stability, and continued government capex on infrastructure expected to bolster the economy.

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As regards the budget, what may play a spoilsport from a policy perspective?

Firstly, all eyes will be on the capital expenditure. In the interim budget announced in February 2024, Finance Minister Nirmala Sitharaman announced an 11.1 per cent increase in the capital expenditure outlay for FY25 to Rs 11.11 trillion, amounting to 3.4 per cent of the gross domestic product (GDP). We hope this figure remains unchanged.

That apart, expanding the scope of Atmanirbhar Bharat, Vande Bharat, and Maritime Amrit Kaal Vision will bode well for defence, infra, railways, and shipping companies. It is also crucial to allocate funds for new initiatives such as green energy and electric vehicles (EVs). These are the sectors of tomorrow and the stocks are commanding a premium based on the immense growth potential.

I also anticipate an augmented outlay for rural development and initiatives aimed at the lower strata of society. Expectations include higher subsidies and increased allocations for agricultural modernisation, along with potential revisions to the Minimum Support Price (MSP) policy and MGNREGA payments. The GST Council has already suggested lowering GST rates on fertilizers to aid farmers. More such measures are expected to boost rural incomes.

Additionally, any relief in taxation for the middle class will be a big positive for the markets. That said, announcement of too many populist measures may impact India's fiscal prudence, which will be a big negative.