Two weeks ago Budget 2022 was announced by our Finance Minister Nirmala Sitharaman with sheer focus on the development of productivity, climate action, financing investments and PM Gati Shakti plan. But what does this mean for the average investor and how can this information be taken advantage of to build a concrete portfolio that performs well in the future based on the budget?
We sat down with our most popular smallcase managers, Upside AI's Co-Founder and CEO, Atanuu Agarrwal, and Teji Mandi's Chief Investment Officer, Vaibhav Agrawal, to discuss these and other questions.
Vaibhav believes that with the announcement of the current budget, the Indian economy is on a firm path to recovery.
“As expected, budget 2022 placed a lot of emphasis on the much needed Capex, infrastructure and growth. Several leading indicators are also hinting at the Indian economy being on a firm path of economic recovery. Importantly, three long term cycles have turned positive after nearly 7-8 years. First, the banking asset quality cycle has sharply improved after the consolidation seen due to demonetization, ILFS crisis and several other factors. Second, the housing cycle is on a gradual uptick, which would bode well for the economy in the long run. Third, the corporate earnings cycle, which grew at a meagre 3-4% CAGR in the last 10 years, is expected to grow at a CAGR of about 15% in the next 3-5 years.” explains Vaibhav.
Where should Investors put their money ,Vaibhav shares,
“Based on the aforementioned backdrop, we would suggest investors put their money in the Banking, Real Estate and Engineering/Manufacturing sectors.
Banking would suggest investing in large private sector banks. With credit growth picking up, asset quality improving, operating leverage playing out on account of investments in technology and reasonable valuations, this is a must-have component in every investor’s portfolio.
In real estate, investors should look at developers that are leaders in their respective geographies and micro-markets. This sector has gone through a brutal cycle, where players on the fringe have been wiped out, and leaders have significantly improved their balance sheets and operational effectiveness. Furthermore, with the housing cycle on a structural uptick, developers with exposure to a residential estate portfolio should benefit meaningfully.”
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And as for Manufacturing, Vaibhav mapped it to the various PLI schemes that have been announced to support his argument.
“On the manufacturing front, the government has rolled out a host of PLI schemes for various sectors. Manufacturing companies, especially in the textiles, electronics and engineering exports front should benefit from the government impetus and global companies looking for a China + 1 strategy.”
On the other hand, Atanuu from Upside AI had an alternative take on the question at hand.
“The budget shouldn’t have a very material impact on your portfolio because asset allocation is a long-term play. Especially for equities, for the best results, one should probably have a time horizon of at least 3 years. Having said that, in general, it was a balanced budget despite major state elections in the offing.”
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Speaking about the different highlights of the Budget and pointing out potential areas that could perform well, Atanuu said,
“For me, one of the biggest highlights is the massive capital expenditure push at INR 7.5L cr for FY23. A nearly 35% jump from last year and ~2x of the amount announced pre-covid in FY19-20. Capex spending has a multiplier effect and can draw-in higher private investments as well. So, I think that augurs well for the building-materials and infrastructure sectors.
The budget further emphasized India’s focus on green energy, so I think renewables could be another interesting long-term play. Of course, viability and unit economics need to make sense. They have not always been a given when it comes to the renewables space in India.”
And as far as cryptocurrencies go, Atanuu recommends Investors wait patiently for the time being.
“A few weeks ago, it seemed like the budget implicitly legitimized cryptocurrencies, but some comments from the FM have put that in question again. So, a wait-and-watch approach makes sense on that front.”
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