Vikas Gupta, CEO & Chief Investment Strategist at OmniScience Capital
“Most important to watch out for in the Budget 2023 is the continuation and enhancement of the Amrit Kaal Vision which was laid out in the previous budget,” Vikas Gupta of OmniScience Capital says in an interview to Moneycontrol.
The CEO and Chief Investment Strategist further says announcements of enhanced PLI incentives and significantly larger allocations to railways, defence, power/cleantech, exports, or incentives for FDI or domestic investments are likely to be positive for the markets, setting up long-term optimism on the Street.
Vikas with nearly 20 years of experience in capital markets thinks this is absolutely the right time to get into technology stocks, both domestic and the US.
It is unlikely that we will get another chance this decade to buy these transformative companies which are going to be the leaders in the disruption of the legacy business models and pioneers in helping establish the digital-first business models, he says.
Do you think manufacturing exports is a theme to watch out for the next 3-4 years?
Absolutely. With the PLI (production linked incentive) schemes already announced being quite successful, it is likely that the Budget for FY24 will further enhance the existing PLI schemes and also add new industries to further promote exports.
With the world trying to diversify away from China in terms of sourcing, it is looking for friend-shoring. India, with its democratic politics and capitalist economics and friendly foreign policy, and availability of large, young and skilled engineering manpower and labour force, is likely to attract FDI for manufacturing. The PLI schemes further add to this attraction.
Further, several state governments are providing further incentives and trying to attract domestic and global investments in a race to become the first trillion-dollar state.
With all this going in its favour, Indian manufacturing exports are likely to grow at a fast pace over the next 3-5 years and beyond.
Which are the most important things to watch out for in the Union Budget 2023 scheduled to be presented by the finance minister on February 1?
Most important to watch out for is the continuation and enhancement of the Amrit Kaal Vision which was laid out in the previous budget, and enhancements under the 4 initiatives of PM GatiShakti, inclusive development, productivity enhancement & investment, sunrise opportunities, energy transition and climate action, and financing of investments.
We expect that specific allocations to various logistics modes, especially, Railways and Waterways under the PM GatiShakti would be significantly enhanced. Allocations and incentives to Clean Teach, Renewable Energy, Green Hydrogen and Electric Vehicles is likely. Significant allocation enhancement to Education, Healthcare and Defence is also expected.
Special provisions for enhancing foreign and domestic investments for special sectors is likely. Possibly, some added benefits for infrastructure sector investments in terms of tax advantages for both FIIs and domestic retail investors is likely.
Which are the possible key announcements that could bring massive correction or rally in the equity market on Budget day?
While the risk of a massive correction is low, it is possible if there are any increased taxes on capital gains or changes in terms, such as, defining long-term capital gains as holding periods of 2 or 3 years instead of 1.
Periodic bouts of euphoria and disappointment during the course of the Budget speech are common as investors misinterpret and then reinterpret what is being said and what are its implications.
Overall, announcements of enhanced PLI incentives and significantly larger allocations to railways, defence, power/cleantech, exports, or incentives for FDI or domestic investments are likely to be positive for the markets, setting up long-term optimism on the street.
Do you think it is not the right time to get into technology stocks?
We think this is absolutely the right time to get into technology stocks, both domestic and US. It is unlikely that we will get another chance this decade to buy these transformative companies which are going to be the leaders in the disruption of the legacy business models and pioneers in helping establish the digital-first business models.
The AI (artificial intelligence) Revolution is here, and it is much bigger than the Agricultural and Industrial Revolution were. The transformation in how the world works pre-AI Revolution and post-AI Revolution is massive. Right now, we are at the inflection point for the AI-Revolution which has barely started disrupting the traditional business models.
Technology companies are now available at discount to their intrinsic values due to the combination of high interest rates from the Fed and a possible, though unlikely, mild recession in the US. Also, the post-Covid peak in revenues for some industries is also likely to be a slight headwind for a few quarters.
This temporary and short-term, slightly unfavourable situation has created a rare investment opportunity for long-term investors to buy these companies at discount to their intrinsic values.
Of course, this is not investment advice and definitely not for traders.
Do you think there is a lot of steam left in PSU banks over private banks?
PSU banks have much stronger balance sheets than a couple of years ago. Furthermore, even after the rally they are still available cheap. Many are still available at PB (price-to-book value) of 1 or less. Also keep in mind that the earnings are likely to increase significantly, rather accelerate, as their ROE (return on equity) goes from single digits to double digits. This means that even without their book value increasing they are likely to generate higher earnings. And with the book value increasing it will further increase.
The demand for loans for capital investments in infrastructure and large manufacturing projects (due to PLI/FDI etc.) is also going to be much higher over the next 3-5 years.
Any thoughts on the expected divestment programme of the government for FY24?
It is likely that the divestment announcements in the budget will be conservative, but the actual internal targets will be much more aggressive. If the markets are supportive and bullish and with market sentiment favouring the PSUs, it is likely that the government will actually try to exceed its targets announced in the budget. Of course, if the market conditions are not conducive it is not likely to happen.
Fed officials have still maintained a hawkish tone. Do you expect more rate hikes in next policy meetings?
We expect a maximum of 25 bps in each of the next two meetings. We also expect a change of tone, although it will still sound hawkish, it will actually make some statements which will signal going softer very soon.
We are quite likely looking at a maximum another 50 bps raise over two meetings as the peak Fed funds rate and then it is likely to start reversing much sooner-than-expected, possibly within 2023 itself.
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