With the budget 2020 not so far away - corporates, working class, investors, economists, fund managers etc are all talking about what they expect from the government.
In one such discussion, CNBC-TV18 spoke with Manishi Raychaudhuri, Asian equity strategist and Abhiram Eleswarapu, head of equity research of BNP Paribas to find out what they expect the government to deliver on February 1 and what they were betting on in the market.
Raychaudhuri is of the view that this will be one of the most keenly watched union budgets. "As far as we are concerned, we normally look at it from the point of view of the credibility of the estimates, and even if there is an increase in expenditure or an increase in the fiscal deficit announced - what are the incremental expenditures being spent on. So, in this budget in particular, the devil would be in the details. One would have to go below the lines and look at what the key assumptions are that are being made to arrive at the fiscal deficit numbers, and possibly even more importantly on what counts are the expenditure being incurred. So if there is a significant growth supportive measure then even an enhanced fiscal deficit would be of relatively lesser importance,” said Raychaudhuri.
“If the purpose of the government is to give support to consumption particularly consumption at the base of the pyramid, while personal income tax in the lower regions of the tax brackets would help somewhat, but more important would be the rural or semi-urban income supportive measures. For example, an increased allocation to NREGA or an enhanced payment for the PM Kisan - those kind of measures might go a longer way in supporting consumption," said Raychaudhuri, adding that it would be a combination of many things that the market would be looking at - exactly what kind of measures are being adopted to support consumption because that is the order of the day, that is the most important necessity at this point of time. The other thing being what are the key assumptions that are being made to arrive at the budgetary calculations.
When asked if the comeback seen in midcaps would sustain going forward, Eleswarapu said, “With the midcap and small stocks already having moved up, it is time to be a little more selective. The midcap universe is quite huge and if you include the smallcaps you can have about 200 stocks and picking about 10-15 of them is not extremely difficult. It is important to stick to liquid stocks because we are in a flow-driven market right now and also on stocks that have sound fundamentals.”
Raychaudhuri is of the view that this year, not just in India but all across emerging markets and developing markets, it is likely to be a year of the stockpicker and it is possibly even more important in the context of India. "We have to look at going beyond these broad-brushed characterisations of investing in growth stocks or midcap stocks and we have to find companies which have certain characteristics of their own. In this context, we have been thumping the table on finding compounders. We try to identify companies which have been consistent excess return generators, where return on equity and cost to equity gap has been consistently positive for a long period of time,” he said.
When asked about themes with an eye on cyclical recovery, Eleswarapu said, “System-wide capacity utilisation is now at a multi-year or a multi-quarter low and it is at levels from which it has historically bounced back. So there is a case to be made for capex plays.""In India, the model portfolio that we run, we do have a couple of cement names and steel names etc. It is an interesting area to look at. Almost all the data points are showing it is a bottoming out but not signs of a clear cut recovery. So it is a space to watch. We do have a couple of those stocks in the portfolio.”