Rate cut at the upcoming monetary policy meet is not a certainty

The market will need time to absorb changes in allocations and react to measures in the budget

- Ram Sahgal

Consumption-driven stocks are likely to outperform capex-driven ones in terms of earnings revisions post the budget tax cuts, which put more money in the hands of the middle class, according to Ganesh Mohan of Bajaj Finserv Asset Management Company.

While increasing hopes of a rate cut at the upcoming Monetary Policy Committee meeting would be priced in, that might not be a certainty given the downward pressure on the rupee and its impact on capital outflows. Mohan, chief executive officer at the fund house, told Mint in an interview. Edited excerpts:

The budget has provided higher-than-expected income tax relief to the middle and lower middle class, but markets seem to have been disappointed by the capex revision. Your take?

Yes, the budget has provided greater-than-expected income tax relief. The allocation to capex is also reasonable—it has grown at a fair pace. However, some companies, based on valuations, appeared to have anticipated more favorable capex announcements from the government. While this may lead to some disappointment, capex growth remains on track. That said, earnings revisions moving forward are likely to be more pronounced in consumption-based stocks compared to capex-driven market opportunities.

Have markets digested the budget or do you expect some reaction on Monday?

The market will take some time to adjust to the budget. On the first day, volatility is influenced by technical factors and pre-positioning by market participants, leading to immediate but often spontaneous movements. However, within a few days, things should stabilize, allowing a clearer view of earnings trends, growth direction, and emerging opportunities.