Union Budget Analysis: Market Experts Madhusudan Kela & Saurabh Mukherjea Decode Budget
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00:00Sourabh Mukherjee, Founder and Chief Investment Officer of Marcellus Investment joins in.
00:04Sourabh bhai, thank you very much for joining us. Net-net, good budget, bad budget. Are you
00:09disappointed with tinkering of capital gains or are you impressed that fiscal discipline
00:14has been maintained more than what we were expecting? I think the FM ticked all the boxes
00:19I could have expected of her. I think she needed to take on this kind of proc that was building up
00:24in the market. RBI and SEBI have been very clear that they are seeing too much money come into the
00:28stock market, too little going into the real economy. All credit to the FM for jacking up
00:34short-term capital gains to 20%. Secondly, she took on the employment challenge, the challenge
00:39of creating millions of jobs. She took it on head-on. I saw five measures being announced to
00:44juice up employment. Even if two or three of those work, I think that's a meaningful step up.
00:48And thirdly, rural India has been suffering since COVID. I think there was a big allocation towards
00:53rural India as well. To fund all of this, obviously, CAPEX had to be sort of lost. So,
00:58I don't think there was any increase in CAPEX related to the February budget, which I think
01:03is also sensible. I think government CAPEX has already gone up by 30% each year for the last
01:09three years. There wasn't obvious need to jack up CAPEX. There was plenty of need to jack up REVX
01:15and boost consumption and she's done that. So, full marks to the FM. I think remarkably well
01:20thought through a common-sense oriented budget. Well, it was a well-balanced budget and while
01:26most people were worried that it would have some shades of populism, that didn't actually happen.
01:32Madhusudan Kaila, now founder of MK Ventures, now joins in. Hi, Mr. Kaila, it's Samina joining in.
01:38First up, quick take on what did you make of this budget? There was tinkering on capital gains,
01:43but we've been expecting that now for a few years. Markets have also so far taken that in their
01:47stride. At the same time, it's not been a populist budget. It's focused on agri,
01:52it's focused on employment, a five-year budget in every sense of the word.
01:57Yeah, I mean, I would say the overall it's quite a good budget that really focuses in a lot of
02:05long pending issues like employment generation, the deep reforms which are needed in agriculture
02:12sector, the overall overhauling and making changes in long pending income tax laws and really
02:20creating, you know, opportunities for youth on the whole. And at the same time,
02:29on the face of it, when you look at the number in the budget speech, they looked very large
02:34and it looked like quite a populist budget. But when you go into finer details, I think they've
02:40done a commendable job of sticking to fiscal discipline, of not only sticking, but basically
02:46lowering down the fiscal discipline, the fiscal deficit, also ensuring that the government
02:52borrowing over a longer period of time as a percentage of the GDP will go down, which will
02:59argue very well for our long term rating. So on the whole, it's quite a good budget.
03:05Coming down to markets, of course, you know, markets have been had a very fabulous run in
03:11the last three years, and more specifically, in the last six, nine months, you know, the market
03:15had some reason for small corrections here and there. And that came in the form of short term
03:23capital gains and also some increase in long term capital gains. Also, it was, you know,
03:28you say that it was expected, but I was certainly not expecting it in this year,
03:33at least because of the government fiscal situation going into the budget was really,
03:40really good. However, I think they have taken a larger call of ensuring that the money really
03:48goes into the real economy and doesn't go all in the stock market, and which is why they have
03:54actually brought down all the asset classes and categorized at 12.5% long term capital gains,
04:02so that people can invest into other asset classes as well. And so they've made it as
04:07attractive as the equities. And the second point is also they've lowered down the duty on the gold
04:12so that some amount of investment can even go into the gold. So I think those measures coupled
04:19with this long term and short term capital gains tax, it basically indicates the government
04:25intention to ensure that the saving must get distributed and not go only into an asset class.
04:32On the whole, I'd say it doesn't really, it argues very, very well for the long term growth
04:40of the country. And it doesn't change my stance on the stock market from a medium to long term
04:46perspective. Absolutely. Thank you, Mr. Kaila for that. Stay with us. Let me quickly move to Saurabh.
04:53Saurabh, this is Harsh here. Saurabh, you know, has enough been done to kickstart the corporate
05:00CAPEX cycle? Because that was one piece where the market really had their eyes out on where
05:06the budget is concerned. I mean, the corporate CAPEX, I don't think the government can do a lot
05:11more than they've done. The main thing I thought they did was by making it unattractive to do
05:16buybacks. I think the FM is very clear. If you now announce a buyback, you'll actually be taxed
05:22not just on the amount, not just on the capital gains, but the investor will get taxed on the
05:26entire payout. And that'll make, that'll put pay to any corporate buybacks this point in.
05:31And since dividends were already taxed, the incentives are now there for companies to spend
05:36the money on CAPEX rather than dividending it or blowing it on buybacks. And in parallel,
05:42by keeping the budget deficit under control, by pulling back the government's borrowing,
05:46the government has reduced crowding out, the 10-year bond yield should be coming down,
05:50interest rates are likely to come down in the next few months. So the government has done
05:54everything possible from a fiscal standpoint for private sector CAPEX. Ultimately, it's a
05:59free market economy and it's up to our promoters and our industrialists to do the needful. I don't
06:04think in a free market economy, the government can be expected to do more than what was already
06:10done in this budget. Okay, I take your point. Mr. Kaila, both from a private sector CAPEX
06:17perspective as well as from a personal tax perspective, do you believe enough has been
06:22done to spur consumer spending as well as private CAPEX spending?
06:29There is never enough you can say it is being done. But I think whatever they could do,
06:34they have done. Ultimately, we have to also understand they're also operating within the
06:40constraints, like budget is nothing else but a balancing of income and expenditure. So whatever
06:46is your income is what you can spend keeping, making sure that your fiscal deficit doesn't go
06:51beyond a point. So I think adequate is being done. They have addressed quite a few issues,
06:57which were really pending in terms of economy, the biggest being the job creation, and the
07:03opportunities which are being created. It's such an innovative scheme, actually, you know, 500
07:08companies will hire internship and that will go into the CSR budget that will really encourage
07:13a lot of companies to hire younger people and provide employment, which is actually absolutely
07:19the need of the hour. So in a way, I would say a lot is being done. And now it is left to,
07:26you know, investors and entrepreneurs to take the take the risk and do their ventures,
07:32right? What can the government do beyond the point?
07:36Madhu, you're smiling away, which makes me really believe that you're genuinely impressed
07:40by this budget. But if job creation is the focus for the next five to 10 years,
07:46and as an equity market participant, how would you play this employment boom?
07:51Would it be consumer stocks? Would it be auto stocks? Where would your bias lie if you're
07:56looking at investing in this market for the next two to three years?
08:00I mean, I will not go one on one to honestly, to look into opportunities because of A move or B
08:07move. Why the reason why I'm smiling is because it is business as usual for us, right? We are back to
08:14because you know, before the budget, there are lots of rumors will go on, you know, this F&O
08:19will get this taxation, that taxation, there are a lot of things which will go around the budget.
08:26When the budget is passed, at least you know that it is life as usual. So I would say that it is
08:33back to really going to the drawing board and really being able to identify bottom up opportunities,
08:39which will arise from various sectors. At this point of time, you know, I can't thumb the table
08:45and say that I will buy a particular sector or B particular sector, I will look for bottom up
08:50opportunities within within the sector, I will keep a three to five year horizon. And I will
08:57keep my return expectation as you know, moderate, considering the fact that last three years,
09:04we have made really extraordinary money, that the focus would also be to ensure that we don't
09:11extrapolate that kind of returns in our mind, and make sure that we are investing with moderate
09:16return expectation, and not what we have gained in the last three, four years.
09:21Saurabh, you want to come in on that as well. We've borrowed returns from the future. And that's
09:26a given with the kind of rally these markets have seen. It's a raging bull run, to say the least.
09:32There is a sense and quarters of the market, people like you to believe these expensive markets
09:37and a correction is much overdue, and maybe also healthy for the markets. Earnings have come away,
09:43most of them have, at best beaten, at best met street expectations. Do you feel now is a good
09:48time to take some money off the table, and then probably, you know, come back with different
09:54vigor, but just wait it out for now, exit, take profits off and then reinstate or reinvest those
10:00funds at a later stage? Actually, it's a very interesting market. If you look at high quality
10:06companies, they actually haven't run out. So we're large investors in HBSP Bank, Asian Pains,
10:11and both stocks I think have been close to nil returns. Even companies, high quality companies
10:16have done reasonably well, say a Titan, or a Davies Lab or a Dr. Lal Path Labs, they've had
10:21reasonable run. I don't think there's been a blockbuster bull run in a Titan or a Davies Lab or
10:27or a Dr. Lal Path Labs. Where you've seen crazy rallies, utterly unjustified rallies, in my view,
10:33is a whole bunch of PSC related names, a whole bunch of power and infrastructure names,
10:39and that's really, those valuations are sort of from different planets. So there's two parts to
10:44the market, if you strip out the low quality rally, if you strip out the rally in low quality stocks,
10:50the Indian market actually is quite attractively valued, as I'm sure everybody watching know,
10:54HBSP Bank is trading at a 20-year low on PE multiples, Asian Pains is trading at its long-term
11:00PE multiple. So I think it's a good place to be, it's a good time to be buying quality.
11:04As I'm sure everybody also knows, we are invested in it through RPMS, I as an individual, my parents,
11:09several thousand of our clients, and that's my point that I make to global investors as well.
11:14Strip out from India the low quality stocks rally, and the Indian market is not expensive,
11:20the economy is in good shape, take a long-term view on India, put money in India,
11:24put money in great Indian companies, and it will be in great shape for many years to come.
11:29Saurabh, we'd have loved to chat with you longer, but I guess
11:32we'll have to wrap up on that note. We'll hopefully see you soon.