Nifty@50K thesis still holds with all right things in place: Raamdao Agrawal

Synopsis

Considering that it’s an interim budget, there were no major expectations from it. Yet, it had all the right things in place. Most important is the government’s fiscal position. Government borrowing for FY25 is also lower than that for FY24. Both these combined should help keep interest rates in check and prevent crowding out of the private sector.

Raamdeo Agrawal2-1200ETMarkets.com
In sum, a status quo budget should ensure the status quo in India’s retail-led equity boom. Do join the party!

Interim budget does in no way disturb my thesis – Nifty of 50,000 by 2030. This is more than double the current Nifty level of 22,000. However, over seven years, the CAGR (compound annual growth rate) works out to only 12%. Budgets, such as this one, gently nudge things towards my Nifty target. How?

Considering that it’s an interim budget, there were no major expectations from it. Yet, it had all the right things in place. Most important is the government’s fiscal position. Government borrowing for FY25 is also lower than that for FY24. Both these combined should help keep interest rates in check and prevent crowding out of the private sector.

In its fiscal calculations, the government has factored in FY25 nominal GDP growth of 10.5%, broadly the same level as in FY24.

I see two ways how India’s GDP growth can at least sustain, if not surprise – bottom-up (capital expenditure) and top-down (wealth effect). The budget places effective government capex growth of 18% in FY25. This implies higher demand for goods and services, which should eventually trigger private capex, a factor missing for long. This is fairly logical and predictable. What is not is the wealth effect.

Over the last several months, 3-4 million new demat accounts have been opened every month. The total number of demat accounts currently stands at 140 million. This figure was barely 40 million in March 2020. In effect, India is witnessing a retail equity revolution. This is a key reason why the markets are booming even amidst the FII selling. In my view, this wealth effect has the potential to contribute 0.5-1% to GDP growth.

Nominal GDP growth of 10-11% should translate to corporate sales growth of the same order. This in turn should drive 12-15% corporate profit growth. Considering that current valuations are reasonable, major de-rating is unlikely. Hence, markets should grow at 12% at least, further confirming my Nifty 50,000 thesis.

I see only one major risk to India’s retail equity revolution – demand-led overheating of markets. To counter this, there needs to be an adequate supply of equity as well. This brings us to perhaps the only miss in the budget – the unachieved target of PSU (public sector undertakings) divestment programme. The FY25 budget is ₹50,000 crore. The government must ensure that there’s no major slip-up here.

In sum, a status quo budget should ensure the status quo in India’s retail-led equity boom. Do join the party!

(You can now subscribe to our ETMarkets WhatsApp channel)

(Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.)

(What’s moving Sensex and Nifty Track latest market news, stock tips and expert advice, Budget 2024 News on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

Download The Economic Times News App to get Daily Market Updates & Live Business News.

Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

moreless

Harry Byrne

Related post