A rural-focused budget will be investors’ worst nightmare, even though it will be good for the economy, says market veteran Shankar Sharma. Such a budget will trigger a “big selloff” because anything done for the rural-economy is looked down upon by the financial markets, he added.
“If the government will give a budget, which in my view will be a good budget for rural India, that will be a terrible budget for stock markets,” Mr Sharma told NDTV Profit. (Watch)
His comments come in the backdrop of rising expectations that the government will increase social sector spending in the upcoming budget. Two sub-par monsoons and low growth in minimum support price or MSP for food grains have kept rural real wage growth at a very low level and hurt rural demand.
“After having lost Bihar (state elections), the government realises that rural vote has turned quite decisively against it and therefore it needs to do something to bring the rural votes back,” Mr Sharma said.
Anything done for urban India is supposed to be progressive, anything done for the poor is always regressive. That is my real concern,” he added.
Mr Sharma said that the present economic conditions do not make a case for investment in largecap stocks as they are closely related to the economy and the economy is not doing well.
However, selective midcap and smallcap stocks have the potential to deliver strong absolute returns (in dollar terms). “Smallcaps can grow lot faster that the economy,” he added.
Investors can look at small and midcap stocks in the chemical, consumer, infrastructure and auto sector, said Mr Sharma.