 "Chokkalingam")
One should not be too bullish on Budget 2017 in terms of stock market, suggested G Chokkalingam, Founder & Managing Director, Equinomics Research & Advisory. He believes government may impose some tax on capital gains some time later in April with immediate effect. Edited excerpts:
How should we approach the market in the following days in the backdrop of Budget 2017?
One should not be too bullish on the market based on budget; 17% hike in tax revenues for a second year in a row is quite doubtful as GDP growth has been revised downward and many sectors are joining what I call "single-digit-growth syndrome”. Secondly, normally good corporate results come first. I still expect many more companies to post poor results for December quarter; so it is better to wait for corporate earnings and then play on stocks.
What is the best and worst part in this Budget? Which sectors will benefit the most from this budget?
Best for the market is not imposing capital gain tax for shares and over 24% hike in infra outlays. I think affordable housing, fertiliser companies and housing products producers should benefit, but first two segments are already over-priced. It should also give boost to large infra companies like L&T, ABB etc. Worst part is that there is no innovation in the budget. I also have a doubt that the government may impose some tax on capital gains some time later in April with immediate effect. So one should remain cautious.
What were your top three expectations from the Budget, and did it get delivered?
I was expecting some innovations in maximising resources and measures for boosting private investments. Both haven’t happened. I also expected anit-dumping duty on tyres, but I do expect some measures to happen outside budget.
What is the best pick for investment purpose as of now?
Indigo, MOIL and Balmer Lawrie Company (personally we hold MOIL).
Your comments on Bharti Infratel and Abbott india. How much of Bharti infratel revenues are likely to be affected in the short-term due to Vodafone-Idea merger?
I think only 10% of revenues may be affected for Infratel. But market has over-reacted in my view. This company has huge tower assets and strong balance sheet. On the other hand, mobile companies need good support from towers to improve their quality. Also, I have my own doubt whether this merger will finally go through as this market is highly oligopolistic with a few controlling 90% market share. I like Abbotte India for its growth and balance sheet, also considering steep fall in its stock price.
Can you shed some light on electoral bonds by political parties that Jaitley spoke about in his Budget speech? How will it work?
I am yet to see finer details, but attempt is to avoid black money and also to make of use of limited remonetisation. I believe that the government will not print entire quantum of high notes which were banned. There would be continuous liquidity crunch. Forcing donors to buy electoral bonds and giving to politicians will avoid issues from limited monetisation and also bring in transparency.
Your take on IRCTC and IRCON listing in stock exchanges?
It is a very smart move. In the past government has always been known for distressed sale of equities from PSUs at poor valuation. Now there is a bubble in valuation of business models like what IRCTC does. So, I am sure the government will get phenomenal money from this listing. Infra and engineering sector still enjoys quite high valuation, so these issues will help the government to boost its revenues through divestments.
With this budget too, the government who had promised to deliver the benefits to the honest tax payers, has completely overlooked the need for increasing the disposable income of the citizens in the Rs 5-20 lakh income bracket. Do you see any possibility of addendum's to this budget post the election in the 5 state assemblies?
I see a lot of scope for additional fiscal measures outside the budget. Not for election, but based on economic compulsions. I see a surprise move on capital gains tax. There are some sectors which need fiscal incentives. This budget didn’t make any major attempt to provide fiscal boost to any sectors though many sectors are joining single growth syndrome. So I see the government taking initiatives during the course of the year. I don’t think the government can do anything directly to improve the disposable income especially in the bracket you have mentioned. If it makes appropriate fiscal policy and regulators make appropriate monitoring, people can make wealth on their own.
The global uncertainties are aplenty, especially with Trump in the centre of it all; are our markets well-equipped to wither away any big global impact due to this? Which sectors according to you are a strict no this year?
I differ from the FM Jaitley when he highlighted global factors. For me, the domestic economic macro factors are worrisome; just look at carefully for the last two-month data on PMI, rising Inflation, industrial output, corporate profits, consumer spending etc from the economies like US, Euro zone, China, Japan, Russia, etc, economic conditions are improving slowly and consistently. Whereas, in India we see many more sectors joining the single digit growth syndrome and GDP growth being revised downward. Considering the political alignment among US, India and Japan, I believe that the new President of US would certainly compromise on India and would become liberal in restricting India's IT and pharma exports. This is my strong conviction. Political compulsions are stronger.
