Deep correction after Budget unlikely; Trump factor to cause near-term volatility: Anil Rego of Right Horizons

Expert view: Anil Rego, Founder and Fund Manager at Right Horizons, believes a significant correction after the Budget 2025 is unlikely. In an interview with Mint, Rego said the Indian stock market has demonstrated resilience, supported by robust investor participation and improving fundamentals. Discussing the impact of Donald Trump’s policies on India, he said “Trump policy” will be a near-term uncertainty, and the Indian stock market is well-positioned to weather external shocks due to strong domestic factors.

Edited excerpts:

What are your key expectations from the Budget?

During the pre-budget discussions with trade unions and representatives from the energy, infrastructure, and urban development sectors, key demands included increasing the minimum EPFO pension to ₹5,000 per month (a fivefold hike), raising the income tax exemption limit to ₹10 lakh annually, abolishing the new pension scheme in favour of a unified one, reinstating the old pension scheme, and imposing an additional 2 per cent tax on the super-rich to bolster social security for informal workers. 

For Budget 2025, we do not foresee major policy announcements. With political stability in place, the focus is expected to remain on fiscal discipline, aiming to achieve fiscal deficit targets, along with continued emphasis on infrastructure investment.

Do you expect further corrections in the market after Budget 2025?

While the Budget 2025 may influence short-term market movements, we do not anticipate a significant correction afterwards.

The markets have demonstrated resilience, supported by robust investor participation and improving fundamentals.

Valuations, though high, are not at extremes and continue to be supported by healthy corporate earnings, strong ROEs, and low FII holdings.

Any short-term volatility is likely to be offset by the long-term structural growth story of the Indian economy.

The focus on fiscal discipline and infrastructure investments in the Budget further strengthens the outlook for sustained growth.

How do you expect the “Trump factor” to impact Indian market sentiment?

The “Trump factor” may introduce near-term uncertainty, especially if the US policy changes lead to global volatility or shifts in risk sentiment.

However, Indian markets are well-positioned to weather external shocks due to strong domestic factors like resilient corporate earnings, steady demand recovery, and favourable macroeconomic conditions.

Over the medium to long term, any impact from US policies is expected to be minimal, as India’s growth story remains primarily driven by domestic consumption, reforms, and infrastructure development.

What is your assessment of the Q3 earnings of IT majors? Is the worst behind for the sector?

The IT sector has experienced a phase of consolidation after the pandemic, driven by weak earnings and fewer new deals.

We anticipate that the sector will benefit from stronger growth in the US and an improved outlook for the financial sector, which should contribute to better revenue and profitability.

Revenue growth is expected to remain modest in Q3FY25 due to seasonal factors but should accelerate from Q4FY25, driven by the ramp-up of recently signed deals.

Demand for Generative AI-based solutions is anticipated to rise as these technologies offer substantial productivity benefits for clients across various industries.

Additionally, cloud-related projects continue to dominate the deal pipeline. We believe selective opportunities with a healthy executable order book in the segment are compelling.

Where is smart money moving into? Which sectors look poised for growth?

Wealth management: In the wealth management industry, India’s HNIs and UHNIs segment has recently been rising drastically.

 It is estimated that the combined financial assets of HNIs and UHNIs may surge to $2.2tn in 2028 from $1.2tn in 2023. 

Currently, only 15 per cent of financial wealth is professionally handled in India, compared to 75 per cent in matured markets, indicating an untapped potential for the wealth management industry. We are optimistic about the growth prospects in the segment.

Manufacturing: We expect selective companies to deliver good growth based on the execution of a robust order book and remain structurally positive on the sector from a near-to-medium-term perspective based on a robust capex cycle and healthy order inflows.

Consumer discretionary: The consumer discretionary sector is poised for significant growth, driven by structural factors such as urbanisation, rising incomes, digitalisation, and evolving consumer preferences with key trends such as premiumisation and a shift from unorganised to organised.

What do you think about the PSU space? Is there more steam left?

After a decade of underwhelming performance, Indian PSUs have staged an impressive resurgence in FY24. 

The government’s focus on infrastructure and capital expenditure, which accelerated post-pandemic, coupled with healthier balance sheets, enhanced governance, favourable commodity margins, and growing order books, has sustained the outperformance of PSUs and contributed to their revaluation. 

After a sluggish start to capital expenditure in FY25 due to elections, a recovery in capex is expected in the second half of the fiscal year. 

Political stability bodes well for the economy and capital markets, as it ensures consistent policy-making focus on localisation and supports the continuation of the government’s economic agenda. 

Looking ahead, we expect PSU Banks profitability to improve playing a pivotal role in driving the PSU trend.

What should our investment strategy be amid market volatility?

In the face of changing market conditions, investors should maintain a disciplined approach to ensure their investment strategy aligns with their financial objectives, risk tolerance, and market shifts. 

A diversified investment strategy is advisable, balancing risk and returns while avoiding overreliance on any single asset class. 

India’s growth and corporate earnings, though likely to moderate compared to FY20-FY24 levels, are expected to remain strong, driven by increased government expenditure and a recovery in consumption demand, further supported by the onset of a rate-cutting cycle. 

We continue to favour equities, prefer medium- to long-term bonds in the fixed-income space, and view gold as a vital portfolio hedge.

Disclaimer: The views and recommendations above are those of individual analysts, experts, and brokerage firms, not Mint. We advise investors to consult certified experts before making any investment decisions.