Reforms in the healthcare and IT industries buck the secular trend: Dharamshi Ravi

Reforms in the healthcare and IT industries buck the secular trend: Dharamshi Ravi

In order to improve the liquidity situation, which should delight the markets, the ValueQuest founder and CIO also anticipates that the Reserve Bank will take action during the policy meeting on February 8th, such as cutting the CRR or opening market operations.

ValueQuest Investment Advisors' founder and chief investment officer, Ravi Dharamshi, highlights his support for local businesses and industries, such as manufacturing, power, power ancillaries, high-end consumer discretionary, as well as finance

Given the current state of the global economy, ValueQuest Investment Advisors' founder and chief investment officer, Ravi Dharamshi, suggests avoiding industries focused on exports. Regarding financialization, manufacturing, and consumer-oriented industries, he is optimistic. He also conveys a subjective sense of optimism about the energy shift, especially with regard to power accessories. According to Dharamshi, the budget's support for e-buses, rooftop solar power, rural housing, railroads, and military indigenization supports this attitude. During an interview, the CIO highlighted his support for indigenous enterprises and sectors, such as manufacturing, power, power ancillaries, higher-level consumer discretionary, and finance. Expert Editing:

What made this budget really unique, and what were its shortcomings?

First and first, I believe it is important to understand that this vote on account was a vote on an interim budget. From that perspective, it implied that there was absolutely no anticipation that a significant statement would be made. Having said that, we still anticipate budgetary responsibility and policy consistency, and both have, in my opinion, been met by the administration. The increase in capital expenditures was particularly robust last year. Above that strong foundation, we have seen a 16–17% increase in capital expenditures. Although there was a little execution delay the previous year, 16–17% growth on top of 32% capex increase is still quite believable. We therefore see budgetary restraint and policy continuity, and I believe that the government's confidence in allowing the private sector to engage in certain capital expenditures really says a lot. Additionally, by keeping the bond market uncrowded, they are really lowering the cost of financing. Thus, I believe there is nothing significant from the standpoint of the equities market. But there was a really pleasant surprise from the standpoint of the bond market.

Do you believe that the announcements made on certain sectors in this budget are lacking? Do you anticipate a pre-election rally?

This administration has steadfastly opposed both bank sheet deleveraging and fiscal stimulus, preferring to concentrate on supply-side reforms. Indeed, the budget deficit grew after COVID-19. Many things that were previously off the balance sheet have now been included. Therefore, the actual budget deficit is 5.1%, which is about equivalent to the former system's 3.5 and 4% deficit. It is evident that our goal is to keep our balance sheet robust. Furthermore, I believe that the post-COVID world's experience has amply shown that this is the best course of action. Worldwide economic difficulties stem from the fiscal stimulus implemented during the Covid-19 pandemic, which exacerbated inflation. In my opinion, the government has exercised sufficient budgetary restraint to either contain or contain inflation. The Reserve Bank of India, or RBI, is now responsible for implementing monetary policy stimulus to hasten growth. I believe we are attempting to strike a careful balance between preserving growth and exercising budgetary restraint. It is possible, in my opinion, that the government withheld certain information such that, even in a perfect world, some engines would remain unstartable.

For the economy to expand at a rate of 8 to 9 percent, exports and rural consumers would likely need to be increased at some point. Even while it may not seem conceivable today, it is doable. I won't be too upset about the fact that not enough has been done to promote development as a result.

Speaking about the market, is it possible to have a pre-election rally? From that perspective, I believe the Budget is basically meaningless. This ended up being rather advantageous since we continued to have a solid balance sheet and practiced budgetary restraint. India is hence a highly alluring travel location. The proportion of foreign institutional investors (FIIs) in the Indian equities market is, in my opinion, at an all-time low given the current circumstances. Going ahead, there have undoubtedly been worries about value, but I believe it is becoming harder for most people to overlook India. In addition to being frugal with money, our political and policy environments are stable.

Naturally, there is some uncertainty since the elections are soon. However, based on the assembly elections and the budget's presentation, it seems that the market anticipates political stability, give or take a few seats here and there. Should this situation persist, India would turn into a major investment magnet. I'm not sure whether the rally will occur before the elections, but either way, we should be optimistic and I don't see any reason to downgrade my assessment at this point. It's still unclear how much money we can draw in and how much re-rating we can do going forward.

Which are the main subjects you are eager to cover this year and are thrilled about?

We are in the early phases of an economic recovery primarily powered by capital investment, which has, so far, mostly come from the public sector. Since COVID, we have tended to favor domestically focused businesses or industries with domestic cyclicalities. The top end of the scale includes manufacturing, power, power accessories, consumer discretionary, and financials; they are indicative of the domestic economy. Since the global economy has clearly been sluggish, we have made an effort to stay away from any industries that depend on exports. There are, of course, instances where IT and healthcare have somewhat recovered from their low points, but I don't see a secular trend in those areas. It seems like they're going back to the mean. Therefore, financialization, manufacturing, and consumer-focused tales continue to excite us. And the energy transition, which affects several sectors, is one area in which we are still positive. However, the power accessories are unquestionably present. These are the topics and regions that we find appealing, and I believe that this budget has reinforced our preferences by promoting rooftop solar, rural housing, e-buses, railroads, and military indigenization. Everything carries on just as it did. Even when the figures fluctuate, the government still has the same goals, and we are still optimistic about the same subjects and regions.

What will be the market's next major catalyst? Naturally, attention will now be focused on the February 8 RBI policy meeting. Do you think the central bank will soon reverse course and lower interest rates? Do you have any guidelines for that?

No, I believe that the RBI should be aware of the liquidity shortage. In reality, by limiting liquidity, we are attempting to reduce inflation. And in my opinion, the RBI should attempt to loosen liquidity as soon as it is satisfied that the government has exercised sufficient budgetary restraint to contain inflation. In light of this, I'm optimistic that either open market operations or reductions in the cash reserve ratio (CRR) can effectively revive the market. And because of that, I believe the underperforming banking industry should get some traction again.