“Karan Arjun” have arrived and will stay, say fund managers on pick up in infra theme

Despite a lower fiscal-deficit target, there will be room for public spending

Government spending will continue to be strong and support stocks in sectors such as defence and railway, according to fund managers.

In Moneycontrol Diwali Party to usher in Samvat 2080, Mansi Sajeja, Fund Manager-Fixed Income at SBI MF, said that the government has been running fiscal deficits of 6.5-7 percent and, though this year the deficit target was lower at 5.9 percent, there was still room for targeted spending.

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“With the revenues growth that we have seen in H1 (the first half of this fiscal)… there's no denying that government would have a decent budget going ahead. Of course, the first would be the vote of account (which is the permission a government needs to withdraw funds from the Consolidated Fund of India and is needed when there is an election few months into the fiscal) but going to deficit numbers of even 4.5 percent (which is the government’s target for FY25) would leave nominal capex at Rs 10 trillion or more.”

When asked if there is any likelihood of cutbacks on public expenditure, she said, “The math does not suggest that (cutbacks) till now… but we’ll have to look at the budget (the Union Budget.”

Kotak Investment Advisors’ CEO Lakshmi Iyer added a bit of humour to her comment, to explain how any cutback could be counterproductive.

“It would be like everyone saying Karan-Arjun ayenge (and waiting in anticipation), and finally when Karan-Arjun are going to come, you can't really nip it in the bud.. and say that ab yeh climax ho gaya, khatam ho gaya  (that the climax is here and it’s done). That will be nothing short of a self-goal from a policy perspective… which I don't think really anybody would like to do.”

Madhusudan Kela, founder of MK Ventures, said that he couldn’t agree with Iyer more.

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He said, “We track the EPC (engineering, procurement, construction) sector very well, and we have large investment in some companies. There is complete neglect even now in the market (towards this sector), but you look at the qualitative improvement in the balance sheets of lot of these companies, they have become virtually zero net-debt free, and they now have order book of Rs 30,000 crore to Rs 60,000 crore, which was never seen in the history ever.”

He added, “At least for the next three to four years, there is a predictability of revenue, there's a predictability of profit, because there is obviously less competition. So, you can't generalise saying that this whole segment is very expensive. There are pockets, which are still offering decent risk-reward.”