HSBC GIF Indian Equity fund manager Sanjiv Duggal says the country’s recent Budget has benefited infrastructure and consumption stocks but an rise in excise duty could make markets jittery.
The $5.6bn fund’s weighting to industrials and basic materials has increased since the turn of the year, while the manager has kept a level weighting in consumer goods.
Duggal says the fund, which outperformed the IFCI India benchmark by 36.4% in 2009, has been positioned to take advantage of buoyant consumption and infrastructure spend and the revival in corporate capital expenditure.
“The Budget has provided impetus for consumption by increasing disposable income in the hand of consumers,” Duggal says. “While it remains a key priority for the Government to implement key reforms such as goods and services tax and direct tax code.”
Duggal says the Budget will benefit financials, thanks to recapitalisation pledges – while consumer discretionary and staples would also profit as the reduction in income tax would more than offset increases in excise duties and higher energy costs.
However, he warns new tax and duty rules are likely to hinder the real estate and energy sectors.
“We expect in the near term the markets could be nervous about increases in excise duty and energy costs and the follow through impact on inflation,” Duggal adds.
“In the medium term the markets will look at Government for implementation of key pending reforms for future direction.
“We view the budget as a key step in the right direction and if followed up with implementation should be positive for Indian markets.”
