Private capex, Nari Shakti, and energy transition: Saurabh Mukherjea's top themes from Interim Budget

The focus on energy transition was also interesting which had EV charging stations, rooftop solar, and EV buses at the state government level. After the elections, we will hear plenty more on EVs. The government has also been moving ahead with the affordable housing theme. It looks like they’re going to keep on re-emphasising the housing theme. We have invested plenty in the building materials and housing space. We've begun our investments in energy transition, so hopefully, by the time she spells out the details after the elections, we will have made more investments there.

What do you think about the 5.1 percent fiscal deficit target?

If she is able to deliver the Rs 45 trillion spending figure and keep it at or below that number then I think 5.1 percent is very doable.

Did you see anything in the Budget that could trigger consumption?

The Finance Minister was very clear that the government would not want to give entitlements to the poor. Over the four years, the National Democratic Alliance was very clear about not giving handouts and sops but rather giving direct benefit transfer where it is required. They want to drive consumption through job creation via EV charging stations. She seemed to suggest that there would be announcements which would make it easier for entrepreneurs to start EV charging stations. Also make financing easier through PSUs and quasi-governmental organisations. Nothing in the Budget suggested that there would be helicopter dropping of cash. The Budget seemed more about giving direct benefit transfer wherever it was necessary. And after that designing schemes for job creation.

What are the direct plays from the Budget?

The Finance Minister was talking about middle-class housing, which means there will be encouragement given to build and buy housing. Under the Pradhan Mantri Awas Yojna (PMAY) Grameen, 2 crore more dwellings are to be created over five years. So, the entire building material space with affordable housing financiers will become relevant. Over the last year, mainstream mortgage finance has grown 25 percent while affordable housing finance has only grown at 15 percent. This will reverse after the elections if the Finance Minister’s scheme has legs in it.
I meet auto rickshaw drivers, vegetable store owners, barbers, and rickshaw pullers who are buying houses using PMAY. We have Aavas Financiers as our main investment. Affordable housing using PMAY will become a defining theme in the years ahead.

In energy transition, we've invested in Eicher Motors because of Volvo. Volvo was steadily gaining market share and has also set up a new plant in Madhya Pradesh. A lot of auto ancillaries will become interesting because they will supply to Indian auto OEMs as well as global OEMs with EV parts. The more support the government gives to the energy transition now, the more benefits we get in the years ahead.
The government is focusing on the women empowerment theme because there are more women voters now. The women theme will also become a big theme.

Would you bet on any developers?

Investing in real estate in India is tricky because of the lack of barriers to entry. Even in the middle of this crazy boom in real estate, developers are not making money. The reason they don’t make money in terms of cash flows is that there are dozens of developers in a location pursuing the same customer. The customer obviously benefits.

What about solar? Does it look like a theme to you?

The silicon rooftop solar will potentially become a very interesting theme. It's almost similar to building materials. We haven't spotted any of them in the stock market yet but I think if there's a big scheme around rooftop solar, given that much of the country is dredged in sunshine this looks like a potential theme. I’m sure private equity investors are looking at making rooftop solar investments which will get listed in the next two-three years.

How does the market look this year?

The situation in the Middle East is tricky. It is not something where Washington DC can call up a government and negotiate with them. These are basically wild people who are hijacking ships, and setting drones with missiles on them. So you are dealing with supranational terrorists who are blocking the most critical freight route in the world. I don’t have a clear answer. But if the Middle Eastern situation calms down, I'm sure bond deals and inflationary pressures will come off and equities rally further.

The second thing to look out for is when the Federal Reserve will cut rates. If rate cuts come by the middle of the year then it makes it easy for the RBI to cut rates. Another thing to watch out for is whether India will fill the void created by China’s decline. In the July Budget there will be more tangible steps like PLI and FAME, which will allow India to step into the void created by China's decline. The fairy-tale situation for us would be if by Diwali the Middle-east has quietened, crude prices are at $70 per barrel, the Federal Reserve has started cutting, and China’s property issues continue. This combination is powerful for the stock markets.

What do you expect in the next Budget that was missed this time?

There will be announcements on taxes and disinvestments. In the five-year cycle, the NDA will try to push disinvestments. There will also be trade treaties with the UK and Switzerland.

What are your top three themes for the next six months to a year?

I would say the big transition. The FM had alluded to it in her speech also. Public sector capex has gone up around 30 to 35 percent in the last three Budgets. She is now saying that it is time the baton is passed on to the private sector. We at Marcellus are trying our best to identify private-sector capex plays. So far, we've made investments in Shanti Gears, RHI Magnesita and SKF. Second is the whole focus on Nari Shakti. There's a massive constituency that is aspirational, well educated, increasingly finding income and employment, and will be logical for the politicians to cater to that. So far, we have identified Trent and Rainbow Medicare. We're looking for more such plays. If you were to think about it, Nykaa, Mamaearth, etc, are women-focused businesses. I just wish they made a little bit more money and made it easier for us to invest. What's very interesting is that many of the needs of women are being intuited and catered to better by women entrepreneurs than by male entrepreneurs. And we're certainly looking forward to finding more such companies.

The third theme is energy transition. The quicker we transition to EVs, the better. And if our EV ecosystem is efficient enough to become an exporter, then it also becomes a creator of jobs for the country. Eicher Motors has been our investment till now but there are plenty of other EV investments we need to research.