Specific steps that were brought on for the sovereign funds, that seems to be very good as it aims to provide the much needed longer-term capital to long gestation projects like infrastructure.
The Budget has made the process of investing in Indian capital markets a lot more amenable for the foreign investors, and such removal of frictions helps deepen the market activity, as well as, increases the access to capital for Indian corporates, Abhijeet Dey, Senior Fund Manager – Equities at BNP Paribas MF, said in an interview with Moneycontrol’s Kshitij Anand.
edited excerpts:Q) What did you make of the Budget 2020?
A) The Budget at the outset needs to be seen not in isolation but in combination with the series of steps taken since the corporate tax cut in September 2019. If one takes that as the starting point, then the direction of the measures will become clear.
The Government seems to be clearly going for (a) simplification of the tax system, which benefits the corporates, citizens and tax authorities; (b) big push towards import substitution by making a push for local manufacturing, especially in sectors where incrementally higher economic activity is likely to shift; (c) encouraging capital investments, corporate tax cuts as well as the simplification of the capital return methods from a tax perspective.
This effectively means that any corporate that is willing to build a large scalable business based on cost leadership, strong balance sheet within the country is likely to benefit in the medium to long-term.
On the other hand, any corporate with a weak balance sheet and not willing to compete on the above terms is more likely to lose market standing. That is how we are looking at it.Q) How was the Budget for mutual fund investors? The government proposed 10 percent TDS on mutual fund income above Rs 5,000. Do you think it will increase flows into growth schemes?
A) With the new proposed personal tax regime, Individuals/HUF Tax assessees now have the choice to opt for the new regime under which they automatically get lower effective tax rates without 80c investments which would be negative for ELSS schemes.
On the MF side, they will now have to deduct taxes on the dividend income of unitholders at the rate of 10 percent for the residents above the threshold of Rs 5000 pa (20 percent for Non-Residents). So yes, in that sense, investors could look at opting for "Growth" schemes going forward.Q) How did the Budget pan out for foreign investors? Tax exemption for sovereign wealth funds – do you think it will lead to more flows in the infra space?
A) The budget has made the process of investing in Indian capital markets a lot more amenable for foreign investors. Such removal of frictions helps deepen the market activity as well as increases the access to capital for Indian corporates. In that sense, it is a very welcome move.
In regards to the specific steps that were brought on for the sovereign funds, it seems to be a very good step as it aims to provide the much needed longer-term capital to long gestation projects like infrastructure.
Given the long runway for growth, these measures should help world-class infra creation in the country.Q) What should be the portfolio strategy of investors post Budget 2020 sector-wise?
A) Investors in mutual funds – particularly equity side are coming into a product with the highest risk and hence their horizon also commensurately needs to be long-term oriented.
Depending on risk appetite and their historical experience with equity products, the investors could look at the Dynamic Equity/Balanced Categories (for new to equity investors) or pure equity products (for seasoned investors). These products are fairly diversified and they work well in longer timeframes.
If one were to go into Direct Equities, then that is a different call and they need to spend more time analysing the fundamentals of each of the businesses and the companies that they would want to invest in.
Ideally, the allocation we believe should mirror the incremental economic activity in the country, and that helps in the long run within the equity part of their asset allocation.Q) What according to you qualifies as a ‘good, bad and ugly’ from Budget 2020?
A) Good – move towards simplification and greater benefits for the lower middle class. Bad – Savings need to be inculcated as a habit at the formative stages of an individual’s career. Some of the tax savings instruments helped achieve that.
While simplification of the tax structures helps remove anomalies and provides greater choice to consume/save, one needs to be mindful that it should not discourage savings.
Ugly – some stressed sectors like real estate or NBFCs were anticipating targeted schemes that could help revive their financial health and those hopes were belied.Q) Should investors be worried about the coronavirus outbreak?
A) Coronavirus is definitely a risk keeping in mind that a large proportion of supply chain in industries like Chemicals, Pharma, Consumer electronics, etc, is disproportionately dependent on China.
In addition, we are also likely to see an impact on weak demand and pricing in industries where China is a key demand driver, for example, autos, metals etc. While some of these are likely to impact overall global growth, it would also imply benign energy prices which benefits the fiscal position of a country like India.
So on balance, it is a risk to be kept in mind from a markets point of view. At an overall level, the cure being found sooner for the virus is important for everyone – both human life and market point of view.Q) The abolition of DDT is a blessing for companies that are known to give rich dividends? Do MNC companies or cash-rich companies make the cut in that list? We have already seen some rally in those shares post the Budget? What are your top bets?
A) We have historically seen that tax changes can have some temporary changes as far as the stock price movement is concerned. In the long run, however, it is more driven by inherent cash flows and capital allocation policy.
On that front, the canvas has become slightly more simple post budget for MNC companies to return money to shareholders from a capital allocation perspective – especially the majority owners who in most cases are overseas.
In that sense, it augurs well. We have some leading MNC names in our various schemes in the consumer, industrial and agri sectors.Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully before investing. The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.