Tag: budget 2020

Expect market to keep running up on anticipation of significant reforms in the budget session, says Marcellus Investment Managers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The equity markets today scaled highs, with the Nifty hitting a record high for the ninth time and the Sensex for the 20th time in 2019. Nifty Bank also scaled a record high of 32,213. The Nifty scaled 12,182, while Sensex hit 41,401 intraday.

Saurabh Mukherjea Founder of Marcellus Investment Managers said, “Given the extent to which the economy is under the pump, the government obviously has made it very clear that they will do whatever reforms they can pull out of their hat to revive the economy and that is what is giving cheer to the bulls.”

Talking about the narrow rally, he said, “It is true that in a situation where economic growth is hard to come by, obliviously a small number of companies have been able to produce decent earnings growth and so, the rally is focused around those companies which are able to produce decent earnings growth in what is a weak economy.”

According to him, the government’s willingness to reform is juicing the market up. Alongside that the inability of most companies to produce earnings is producing a very small set of winners in the stock market, he added.

“I think the market will keep running up on the anticipation of significant reforms in the budget session of parliament,” said Mukherjea in an interview with CNBC-TV18.

He further added, “I think this construct where in every sector, one or two companies are taking away 80-85 percent of the profits is likely to sustain for the foreseeable future.” The main reason for that being access to funding has become very difficult, whether it is funding for NBFCs, whether it is funding for smaller businesses.

“In a country where access to funding is difficult those few well-capitalised highly cash generative companies will rule to the roost and that is what we are seeing in the market, I don’t see that situation changing in the foreseeable future,” he further added.

Hope the government delivers on the reform expectations and if they come through, this concentrated rally will continue into the next year, he said.

Sector specific, he said, “When I first discussed the auto sector 3 months ago in October, I was a little more apprehensive whether the recovery will fructify or not, but we are seeing the beginnings of a auto recovery. In some of our clients’ portfolios, we have Eicher Motors.”

“If we have to choose one sector through which to play a slow burn recovery over the next 1-2 years, I would choose autos because it is a sector where we do find well-run cash generative clean companies with good franchises and valuations too are attractive.”

However, he said he was not adventurous enough to go into power, infrastructure, real estate, metals, mining or that sort of thing.  “I think auto is a decent sector in which one can find good franchises and play what will be a slow burn recovery,” said Mukherjea.

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Will be surprised if see any announcement for paper industry in Budget: GP Goenka of Star Paper

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Paper industry could witness some benefits coming through in the Union Budget 2020, said GP Goenka, chairman of Star Paper Mills .

Goenka said on CNBC-TV18 that it’s difficult to say if there will be any plastic ban in the upcoming Budget.

“However, there is a definite hope that plastic would be banned whether it happens during the Budget or takes another couple of months, no one knows,” he added.

He said: “I will be very surprised if in the Budget there is anything for the paper industry.” “It’s high time that we get into bullish phase of paper industry for the next 3 months, but I do not know if the government will do something in the immediate future. I think the government will be focusing on more important segments,” Goenka added.

On business front, the chairman said: “For the last month or so there has been some improvement. We expected much more than what happened, but seeing an uptick in demand as a busy season approaches.”

According to him, higher import at lower cost is impacting the overall paper industry.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Whistleblower complaints poorly handled by Infosys, says Helios Capital’s Samir Arora

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The whistleblower complaints that accused Infosys CEO Salil Parekh and CFO Nilanjan Roy of unethical practices were “poorly handled” by the company, said Samir Arora, founder of Helios Capital, noting the IT giant “didn’t even defend it”.

Arora, however, said that he was not in a position to comment on the price fall and if it is justified as the findings of the probe were still awaited.

He added that whistleblowing should be encouraged particularly in India where “people are so scared to tell anything and we cannot make it public”.

Talking about the festive season, Arora said that this Diwali was much better than the last. “I have been bullish from the last month after the government’s announcement on corporate taxes but if I look at it on a day-to-day basis, the margin news is still negative,” he said.

About consumption slowdown, Arora said, “In general, I am very bullish and my reason for trying to be negative is to push the government into doing more things and doing them proactively and aggressively.”

“Consumption would have already bottomed out or maybe it was bunched together, but over time, things that are slightly cyclical in nature will solve on their own and you may need a bit of action but not so much,” he added.

Speaking about bets for next 6 months, Arora said, “Right now my bet is on the budget that we have to remove LTCG, we have to cut personal taxes because I do not think these divestments are happening in 4 months.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Markets must anchor expectations from the government and RBI

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Since the resounding victory of the Bharatiya Janata Party (BJP),  economists and financial market experts have been speculating on the goals of a re-energised Narendra Modi.

Expectations have ranged from doubling exports to vastly improving agriculture to getting India into the Southeast Asia supply chain where global companies are exiting China and looking for new homes to locate their manufacturing. The government itself appears to have a 100-day plan.

For the moment, this column will concentrate on what immediate money, banking and financial sector moves one can expect from the government.

Firstly, tax revenues for FY19 have probably fallen far short of the revised estimate of a 19.5 percent rise. Tax revenues may fall short of the estimated Rs 14.84 lakh crore by at least half a lakh crore rupees.

With a base of Rs 14.3 lakh crore tax collections for FY19,  the asking rate of tax growth to reach the budgeted tax revenue in FY20 of Rs 17 lakh crore is almost 19 percent. If the tax revenue shortfall in FY19 is closer to Rs 1 lakh crore, which is not inconceivable, the asking rate of tax growth this year rises to 22 percent.

On the expenditure side, the FY20 budget had to provide Rs 75,000 crore for the PM Kisan Yojana. Besides, full tax rebate for those with taxable incomes up to Rs 5 lakh and a pension scheme for the unorganised sector adds up about 0.5 percent of GDP by way of extra giveaways. The government has managed to keep the fiscal deficit flat only by some conservative budgeting on existing centrally sponsored schemes and a tough-to-believe 4.7 percent rise in establishment expenditure.

Besides these, any scope of hiding fiscal expenditure in public sector units is fast running out. Borrowing by the FCI from the NSSF in lieu of food subsidy not reimbursed, government serviced bonds issued by PFC plus bank recap bonds all amounted to extra-budgetary borrowing of 3.4 percent of GDP in FY19. This number stood at 1.9 percent in FY17 and zero in FY15.

Even as the bond market runs away with expectations of rate cuts, it is important to note that government borrowing will remain an albatross. The bond market will be very lucky to get away with the Rs 7.1 trillion gross government borrowing and the Rs 4.73 trillion net borrowings announced in the February budget.

Yes, the market has been relying on a hefty dividend from the RBI via the Jalan committee. Just two points of caution: there are two central bankers in that committee who will worry more about the real and perceived autonomy of the central bank. Even assuming they recommend that RBI’s capital may be nixed by Rs 2 lakh crore, the market needs to note that this RBI capital is today invested in government bonds and any transfer to the government will be recommended over a period of time, if at all so that it doesn’t disrupt the market.

Let us come to another much talked about hope from the RBI: that the regulator will provide a liquidity arrangement for the funds-starved NBFCs. Here are some sobering thoughts: Firstly, RBI has already provided a FALLCR (Facility to Avail Liquidity for Liquidity Coverage Ratio) to banks. Basically, this means banks may reduce their holdings in government bonds by two percentage points and use it to lend to the corporate sector. Today, hardly any bank has used the facility.  Clearly, banks have liquidity but don’t want to lend to certain NBFCs. This brings us to the second point: the markets (read mutual funds) want government and RBI to goad banks to lend to NBFCs so that the MFs can palm off their questionable securities to the banks. Now why would the regulator allow it, or even for that matter, why would the banks?

A third suggestion has been the creation of a stressed asset facility like the one provided under IDBI’s SASF in 2009.  At the time of going to press the RBI seems not to have decided in favour of such a step. Announcements from the central bank so far have been more in the nature of creating a special supervisory cadre and ordering NBFCs to maintain more liquidity. The SEBI, on the other hand, is widely believed to be planning a stopper to mutual funds giving loans against shares to leveraged promoters. All these don’t sound like regulators waiting to ladle goodies to NBFCs or to mutual funds.

The government that just scored a resounding victory has prided on not bowing to crony capitalists. Why would it want to spoil its record, first thing after a great mandate? From the look of things, both regulators and the government may more likely force distressed groups to conclude deals with buyers than give any sops. Help may come if there is panic, but stocks at all-time highs and bond yields at 13-month lows don’t smell of panic.

The bond and stock markets’ best bet is that liquidity may anyway return to the interbank market since June, July, August are months when currency withdrawal falls.

The RBI too has shown its intent to stick with more open market bond sales, which is positive for bonds, banks,  and NBFCs. Yes, there is a hope of giant rate cuts and even a CRR (cash reserve ratio) cut. The rate cut is a preserve of the Monetary Policy Committee which will continue to look at fiscal deficit and the recent rise in milk, vegetables and fuel prices. A CRR cut may actually be bond negative since it will come in place of OMOs.

Short point, it would be good for markets to anchor expectations.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow