Speaking to ET Now, Dharamshi said the budget should not be viewed solely through the lens of capital markets.
“First of all, we should not be judging the budget only through the prism of capital market. Of course, we are capital market participants, so we are definitely much more impacted, but budgets are about economic direction and policy intent while markets are about marginal flows and the major disappointment came from the fact that we did not do anything to attract those marginal flows.”
He pointed out that foreign institutional investors (FIIs) have been net sellers for over a year, and the budget did little to address this trend.
“We have been essentially facing FIIs selling since last year or so and there was nothing in the budget to stem that flow. I think that is where the disappointment in the market came from.”
Dharamshi added that it would be incorrect to treat the market’s reaction as a verdict on the quality of the budget itself.“I would not rule it as a referendum on the budget whether that budget was bad. In fact, I would not even go to the extent of pinning it on the STT increase because it is too small a thing in the entire scheme of things to make such a big dent. It is just the lack of intent from the government to attract foreign flows which disappointed the market more than what is there in the budget or is not there in the budget.”Budget Math Credible, But Global Attractiveness KeyDharamshi described the budget as fiscally credible, highlighting that key parameters such as fiscal deficit, debt-to-GDP and capital expenditure were well managed.
“The budget is credible. Their numbers are credible whether it is the debt to GDP, whether it is the fiscal deficit, whether it is the capex increase, expenditure increase, everything seems to be credible.”
However, he said market recovery will depend on how attractive India becomes relative to other emerging markets.
“What we have been suffering from is the fact that our valuations were relatively very-very high and then we saw a slowdown in earnings last year. Earnings are going to revive cyclically this year. However, we need to see the growth to be more than 10-12% and only then will relatively we become more attractive than the other emerging markets.”
He noted that India’s valuation premium has largely been eroded, bringing it closer to peers.
“We are reaching a point where our premium is completely washed out and we are now at a relatively neutral, if not attractive, level as compared to the emerging markets.”
Dharamshi also said policy actions outside the budget could help revive sentiment, with global trade developments playing a key role.
“The biggest, of course, the event remains the US trade deal. European trade deal coming through and budget did not do enough to revive the market, but US trade deal definitely remains a big deal. If and when that will happen, that should turn the flows back to positive in India.”
PSU Banks and Defence: Reaction Driven by ExpectationsOn the sharp reaction in PSU banks and defence stocks, Dharamshi said the sell-off was largely driven by elevated expectations rather than a deterioration in fundamentals.
“In fact, the budget actually delivered on the defence but the expectations were running high, that there were some expectations which said more than 20% or even as high as 25% increase in the defence budget and because the expectations were so high that 18% does not look like a big number.”
He maintained that the long-term outlook for defence remains strong.
“I do not think there is any change in the story in defence. It remains a multi-decade theme worldwide and I would not be so worried about the reaction of the market on one-day basis. However, the valuations definitely do remain a challenge because a lot of the growth had been factored in.”
On PSU banks, he said these stocks had held up relatively well before the budget, making them vulnerable to profit-taking.
“These two sectors were one of the few sectors which were doing well even in the face of markets not doing well. So, I guess it is just the disappointment on the expectations which has led to these sectors turning dramatically down yesterday. But otherwise, the fundamentals of the sector still remain strong.”
Renewables and Storage: A Quiet but Powerful ThemeWhile renewables did not feature prominently in the budget speech, Dharamshi said the detailed allocations reveal a strong push toward energy storage and supply chain resilience.
“If you go inside the details of the budget, you will see that there is absolutely fantastic focus on these areas and government is actually doing a very good job of moving from one stage to another.”
He said the focus is shifting from solar capacity creation to storage infrastructure.
“If the last four-five years were about building out the solar capacity, the next few years are going to be about building the storage capacity.”
Dharamshi also highlighted benefits from duty reductions and exemptions that could lower costs for companies in battery storage, data centres and renewable equipment manufacturing.
“Very smartly government has reduced duties or continued some of the exemptions which is going to lead to lower capex as well as lower opex for companies that are focusing on battery storage systems, data centre, the bill of material for even for manufacturing some of the renewable equipment is going to come down.”
He said geopolitical shifts are making domestic supply chains more critical.
“In today’s scenario where it is essentially a multipolar fragmented global economy, what tends to happen is you have to have control over your own supply chain… supply chains are getting weaponised and we want to avoid that scenario especially in some core and critical sectors like energy.”
Dharamshi concluded that the government’s focus on scaling and integration in renewables is a long-term positive that may be underappreciated by the market.
“That is where the entire focus on nudging the scale and then nudging upward and backward integration is what this budget has actually laid out and I think that is a brilliant move… I would give a lot of credit to the government in continuing with the focus on renewable energy.”
