"Overall the Budget has been one of the most pragmatic and realistic Budgets I have seen in the last three decades," Vinay Jaising, Managing Director - Portfolio Management Services at JM Financial Services says in an interview to Moneycontrol.
But, he sees three negative factors in the Budget. And keeping a constant capex spend in rural for the last three years of Rs 3.8 lakh crore is one of them, says Jaising, who has more than 27 years of experience in equity research and capital markets.
He has given a rating of 9 (out of 10) to the Budget considering it a) realistic; b) not being populistic; c) fiscally prudent; d) having higher quality spending with a focus on job creation.
Did you find any negative factors for the market or any sector in the Budget?
Overall, the Budget has been one of the most pragmatic and realistic Budgets I have seen in the last three decades.
Amongst the negative factors in the Budget and sectors impacted I can see three:
a) Keeping a constant capex spend in rural for the last three years of Rs 3.8 lakh crore
b) Removal of tax benefit for new life insurance policies (in non-ULIP) with an aggregate premium of Rs 5 lakh; and higher emphasis on the new tax regime. This impacts life insurance companies negatively, especially those having a higher exposure to savings or assured products and customers with higher ticket sizes.
c) Capital gains on transfer or redemption of market-linked debentures (MLD) to be taxed as a short-term capital asset in the future. Here we need some clarity on when it would be applicable; however, it would certainly increase the cost of capital for those companies using MLD as a route to raise capital.
What is the most surprising element in the budget?
The most surprising element in the Budget is that it is not populist but prudent on the fiscal front, which showcases the way for lowering the fiscal deficit to 4.5 percent by FY26 from 6.4 percent in FY23 and 5.9 percent in FY24. The assumptions for FY24 taxes appear real. The FY24 nominal GDP growth estimate of 10.5 percent is in line with our expectations, and we believe if the global economies revive in the second half India's growth can be higher.
Also, the revenue assumption of 12 percent after a growth of 31 percent in FY22 and 10 percent in FY23 seems to have been underplayed. The expenditure growth of 8 percent, with a focus on capex, has improved the quality of government spending. The central government and PSU capex spend together now accounts for 4.9 percent of GDP for FY24, the highest ever, up 32 percent YoY.
It has been so interesting to see the government finally cut the tax rate for the Richie rich from over 42 percent to almost 39 percent; this was the group which has been hampered the most on the tax burden, a big positive in my eyes.
Do you think Budget 2023 has led a strong path for growth in years to come?
Yes, the Budget 2023 has ticked virtually all the boxes to pave the way for strong growth in the years to come. India has emerged from being the 10th biggest economy in 2014 to being the 5th currently. Our biggest concern has been capex spend by the country and job creation and at the same time being financially prudent. All these three issues have been addressed.
Do you think the Amrit Kaal vision is going to be a game-changer for India?
In 2021, Prime Minister Narendra Modi used the term ‘Amrit Kaal’ for the first time during the 75th Independence Day celebrations. He used Amrit Kaal while laying out a new roadmap for India for the next 25 years. Amrit Kaal aims at bettering the lives of Indians and bridging the development gap between villages and cities. It also aims to usher in the latest technology and digitisation and reduce government interference in public life.
"While India has made rapid strides, there should be a 'saturation' of development and 100 percent accomplishments with every village having roads, every family having a bank account, every eligible person having health insurance, card, and gas connection." Calling this period, a "culmination of hard work, sacrifice and austerity", he said this is a period of 25 years to get back what our society has lost in hundreds of years of slavery.
The word Amrit Kaal has its origin in Vedic astrology. It is considered the best and most auspicious time to start new work. The current Budget seems to be an arrow in the same direction paving the way for a strong India growth story.
What is your rating for the Budget on a 1-10 scale, and why?
I would give a rating of 9 to the Budget considering it a) Realistic; b) Not being populistic; c) Fiscally prudent; d) having higher quality spending with a focus on job creation.
What is your take on the FOMC meet outcome?
The FOMC meet outcome was in line with expectations of a 25 bps rate hike. Also, they maintained their rate policy forward guidance of “ongoing increases,” signalling a possible another 25 bps rate hike in March. However, more importantly, Fed Chair Jerome Powell's press conference stressed the data-dependency of monetary policy as an overarching message while discussing a wide range of topics. Despite flagging risks of rebounding inflation and the fragility of beginning disinflation, the FOMC seems to have begun to lay the groundwork for a pause in the coming months and potential rate cuts as disinflation proceeds in late 2023 or early 2024.
What are the sectors to bet on especially after the Budget?
We would bet on banks, infrastructure and capex-related sectors like cement companies, consumers and speciality chemical companies.
Our thematic names are showcase below:
Do you see any possibility of the market hitting June lows?
In June 2022 the markets kissed 15,300 levels which is 13 percent lower than current levels. Then we were trading at 18x one-year forward as against now we are around 19.5x one-year forward.
The global market conditions have improved since then with most of the rate hikes globally being behind us and China reopening seems to be a reality. In the last three months, China has moved up almost 50 percent and India has been flat. This year too India is down about 5 percent whereas China is up 15 percent, MSCI World is up 8 percent and MSCI EM is up 9 percent so India has been underperforming. The FIIs too this year have taken out over $2 billion, and a similar number has flowed into Korea and Taiwan, respectively.
Though we do not know FII inflows in China, intuitively larger numbers have flowed into that country. The valuation gap between India and EMs which was around 11 percent is now around 80-90 percent. Hence, a lot of correction either due to time or earnings growth is behind us. However, we will not be surprised if we witness an index level of early 16,000 based on earnings slowdown in non-banks and a possible global recessionary environment in 1H of 2023.
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