Hiren Ved of Alchemy Capital Management believes couple of proposals like delaying GAAR, abandoning distinction between FII and FDI investment made in the Union Budget are favourable for foreign investors. He feels there is further headroom for foreign participation and that will bring in more funds into India.
In an interview to CNBC-TV18, Ved said private banks and non-banking financial companies (NBFCs) will still lead the market. Also, companies that are related to railways, renewables and infrastructure are also likely to benefit going ahead. Below is verbatim transcript of the interview:
Q: Immediately is the rally in the market safe, has the Budget done anything to boost the near-term rally?
A: The Budget seems to have hit the right notes. Clearly, they have gone ahead and taken the risk of being pro-cyclical by spending more money, relaxing the fiscal deficit target and that is what everybody was looking for. So, there is nothing in the Budget that should not make investors happy.
Also, the global context is much more favourable. China has cut rates over the weekend and most other markets are at new highs and liquidity continues to be benign. So, maybe that should let the markets remain in a good mood.
Q: Have you upped your near-term targets because of anything in the Budget?
A: We don’t run near-term targets or anything.
Q: In the medium-term do you think Budget has made you increase earnings and therefore the index targets?
A: I don’t think that this Budget improves short-term earnings capabilities. In fact at the margin, your marginal rate of tax has gone up. However, investors are not looking at the very near-term. There will be still be challenges for one or two quarters in terms of earnings is concerned. However, what most people are looking at is a broad thrust of the Budget and there is now enough on the table.
If you read through the Railway Budget, if you look at this Budget, clearly this government wants the investment cycle to start kicking. They want infrastructure and growth very desperately.
They have put a very benign taxation structure. The capital gains structure was always very good; now even the corporate tax structure. So, he is telling investors and entrepreneurs that we have a very competitive, now please go ahead and invest and take that risk.
It is not so much about near-term earnings which has been a challenge. The government has done everything that would keep the price to earnings (PEs) buoyant.
Q: What would you bet on in terms of sectors or stocks if you can?
A: I think there is a lot for the financial services sector and so, banks will still lead; I think so private banks. Maybe some of the leading public sector banks if they are able to raise capital because I don’t think there was enough for money set aside for recap of banks. That was one of the, I would say disappointments of the Budget.
However, having said that, for private sector banks and non-banking financial companies (NBFCs) it will be very good. I think the Budget and the Railway Budget sets the stage for a much wider breadth of sectors which will now come into play as oppose to what we have seen in the past.
Q: The one biggest takeaway has been that the Budget is trying to appease the foreign investor in a lot of ways whether it is deferral of general anti-avoidance rule (GAAR), whether it is the merging of the foreign direct investment (FDI) and foreign institutional investors (FIIs) limit, in that sense do you see higher foreign investor participation into Indian markets now?
A: I wouldn’t use the word appease but they have done all the right things. Very clearly we know that we do not have enough resources and that we do need foreign resources, both FII and FDI to fund our very ambitious investment cycle. So, the steps are very welcome.
The fact that they have removed minimum alternate tax (MAT) on foreign portfolio investment (FPI) – a lot of irritants have been removed as far as bringing in foreign investments is concerned. Also, this merger of FII with FDI is very significant.
Now money is fungible and they are saying that we welcome both whether it is FII or FDI. So, there will be much more headroom for foreign investments to come in. I wouldn’t be surprised if the free float weight of the banking sector itself goes up in the index as a result of this merger. So, you should see far greater participation by FIIs. I think it is very positive and it will send out the right signals.
Q: For the long-term private banks is definitely something you will bet on, what else would you bet on?
A: Now it is very clear from the direction that railways are going to lead the capex boom. I think that is an area that one needs to focus on. Even defence and renewables and then you have roads and ports that come into play.
Overall, companies that are infrastructure related and have good balance sheets can take advantage of the order flows that should start flowing given the large allocations that have been made in the Budget. Infrastructure companies and companies that will benefit from railways, defence and renewables will now look interesting.
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