One has seen the relevance of the Budget getting reduced over the years. Barring a few odd sectoral movers here and there, the market has taken the Budget as just a non-event and moved on along. Could it be any different in this pandemic year?
It is a bullish sign that this time the market run is only happening primarily because of FII flows or whatever and maybe a bit of recovery trade rather than the hope that something will happen in the Budget. Now if the Budget disappoints, it will be more like a self goal, but otherwise there is hope that even if they do nothing bad, it is quite positive.
During the 2020 Budget, the Finance Minister had said that the FY22 Budget will be made in a manner never seen in 100 years in India. I have not understood what it meant because even India technically is not 100 years old as a new country. But if it was meant that this is going to be a great Budget, I am thankful that the market does not seem to have discounted that in any way because it is very difficult to get a Budget like that. Let us say the government says or the budget says that we will spend a lot of money on infrastructure, who cares? They are spending and nobody knows exactly where the projects are to absorb big infra. If you say they are going to divest, who cares because the old divestments are going on? Whether they are happening or not itself would be big news rather than having much bigger announcements.
The only thing which from a public point of view can be called a big Budget is if you cut taxes may be they cut taxes for 80-90% of the public but I do not think they are cutting any taxes for the high net worth guys and there are 2 -5 crore HNIs and the stock market is dominated by these guys. So in the end, the market impact may be there only if personal taxes are cut substantially. Otherwise you will do it for some sector or the other but that would not qualify for a 100-year budget which is a confusing thing.
The one figure that the market does watch out for very keenly including the FII fraternity has been the fiscal deficit number. Estimates are ranging between 6.5% and 7%. What do you think is going to be a digestible and acceptable figure for markets?
This year, the focus on fiscal deficit would be much less because whatever way you look at it, India has spent less than what other countries have done as percentage of GDP. I would think that even 7.5% would be okay.
Next year, anyway there will be a much higher number in terms of tax collections because of the rebound and recovery in the economy and maybe the GDP growth will be 10-12%. So even if the fiscal deficit is 7.5%, I do not think anybody cares. In fact, the negative would be that the government takes it too seriously and says that in the next two years or so, we want to come back to the normal path. So, right now, it is not a big issue and I do not think this is going much beyond that.
If indeed, there is a higher tax on the super rich, that is surely not going to go down well for the markets?
Not at all because right now you want the confidence of the investor. Investor does not mean FII investors alone. Investor also means all these guys in India who are doing well and investing and putting their savings and not moving to Dubai or Singapore or London. All you need is 2 million pounds which thousands of people in India would have. Right now, all we want to do is avoid our self goals. Over time, taxes will have to go up worldwide because so much money has been spent and some day this bill has to be paid. It is just that right now let us not be the leaders in the world in doing that. Over time, either by broadening or mostly by a little bit higher taxation, something will have to be done over the next one-two years but let us not start now in the middle of a revival.
Also one has to see what Joe Biden does because his plan was originally to increase corporate taxes and increase capital gains taxes. Now, they have control of both the Senate and Congress and we do not know what he would do, but as per his original plan, taxes were going up. So let others lead, then you can see later what to do.
What do you think is going to be the prerequisite to spur growth within the infrastructure sector? Would the Budget give a major thrust on this theme?
These are all so big picture and I am such a small picture guy. But in a big picture sense, when we say that we are attracting money in infrastructure or FDI in general, everything is good except that really we should not be celebrating when a foreign private equity comes and buys a readymade building which has been rented out and which is earning 9% yield or whatever because that means we are selling out for the heck of it .
These things should be bought by LIC and the insurance companies which are never getting 9% anywhere else. And it is just that the Indian system is becoming a tenant in its own system or in its own country. When the building is nearly ready and some landlord has to pay $50 million or $20 million which he does not have and then the whole building is bought by Blackstone and others, it is hardly improving anybody’s infrastructure. Either they should be creating jobs or bringing technology or something where it is truly distressed. What sense does it make to sell a 99% ready building?
Anyway nothing can be done as this is how open economies work. But I am saying some of it is not really of any great help to the system. But in general, the problem with infrastructure investment as far as I am concerned is when these announcements are made, the conversion to reality is three-four years away and we do not know what to do with it, what will convert, what will not convert. So these are good backdrop things but really from an action point of view what do you do even if the government says that they are spending so much on this metro or that metro. Who knows when it will be done and if the land is there or the project appraisal has happened? So I do not react to these.
Given that there is so much focus on healthcare, vaccination and domestic economic revival, they pretty much seem to be interlinked. What is your outlook on healthcare or welfare allocations when it comes to revenue expenditure on the Budget?
Big picture, you want allocation in three areas including infrastructure. I do not know how to react to it so I do not relate to the numbers. But those three areas all our life should be infrastructure, education and healthcare. But from a stock market investor point of view, I understand that the allocation should be higher across these three areas – education, healthcare and infrastructure. It does not mean it is actionable from where I am looking at it on that day. For a fund manager these are all non-actionable. But they have to still do it. They cannot be running on only what will please a stock market investor that evening.
What are the three things for a millennial audience in the Budget that you are going to be looking out for and three things for a market investor that you need to look out for in Budget 2021?
Earlier, when I was in Singapore, I used to fly to India to see the Cudget. This was in 1999, 2000 to up to 2005-06. I no longer do so.
So the millennial investor need not look at the Budget. He should not be making instant decisions after watching it on TV. If you think that the Budget is going to help or hurt somebody, then they should help the overall environment in terms of lower taxes, better infrastructure etc, but not necessarily choose winners and losers that day. So there should be nothing that should come out of the Budget for a millennial investor.
We will always be seeing it and studying it but it is more an ongoing education rather than to react that day.