large cap investments: Putting money in the right hands to spur consumption: S Naren

The backdrop to the budget and the market was such that consumption was weak, especially among certain middle-class segments. Over the past three years, due to a strong macroeconomic environment post-Covid, infrastructure and related sectors had done well. However, this year, what the economy needed was a renewed focus on consumption-oriented areas.

While many were talking about the need for interest rate cuts, the real issue at this point was the slowdown in consumption. The government has put money in the hands of people at the lower end of the income spectrum through tax reductions. This was the need of the hour and, in that context, it was the right budget for this stage of the economic cycle.

Infrastructure-oriented segments have been performing well, and the overall macroeconomic environment has remained positive. We anticipate some slippage from the 4.4 % fiscal deficit target announced by the government. However, given the significant fiscal consolidation achieved since 2021, a minor slippage is acceptable under current circumstances since it provides necessary stimulus.

The other key highlight of the budget is the formalisation of 100% FDI in the insurance sector, signalling the commitment to attracting foreign capital. The announcement to simplify KYC norms by 2025 is expected to ease compliance burdens and further enhance the business environment. Overall, this budget is a positive step forward.

Equity Market
As for the equity markets, challenges persist, with valuations continuing to be high, especially in mid and small cap segments. However, large caps are now becoming more reasonably valued, particularly after the recent corrections driven by heavy FII selling over the past several months. At this point, we recommend investing through systematic investment plans (SIPs) or systematic transfer plans (STPs) in large-cap-oriented or dynamically managed / asset allocation / multi asset funds for long-term investors. Multi-asset funds have been particularly successful in attracting investments into underappreciated areas like debts, commodities and REITs (Real Estate Investment Trusts) and InvITs (Infrastructure Investment Trusts). Such strategies help mitigate risks while capturing opportunities across economic cycles.

Fixed Income
On the fixed income side, the expectation is that RBI will cut rates and further infuse liquidity, potentially through another CRR cut. Given that most of the fiscal concerns have now been addressed and the borrowing programme is larger than expected, we believe the short end of the yield curve is particularly attractive.To summarise, India’s structural reforms present a distinct economic growth path for the next several decades. The budget continues to build on the progress of reforms over the past several years. India’s economic fundamentals remain strong, and the structural growth story continues to inspire confidence. However, the path forward requires patience, a long-term perspective, and adherence to valuation principles that involve asset allocation and investing in flexible investing strategies.