Budget 2022 likely to focus on fiscal consolidation, private CAPEX and PSU divestment: Sachin Trivedi of UTI AMC

Sachin Trivedi, SVP, Head of Research & Fund Manager – Equity of UTI AMC, said the upcoming budget is expected to focus on three broad areas of a path towards fiscal consolidation, boosting investment-driven growth through government and private Capex and raising additional resources through PSU divestments and asset monetization.

Trivedi has 16 years of experience in research and portfolio management. In research, he has specialized in Auto OEM, Utilities, Capital Goods, and Logistics.

In an interview with Zeebiz's Kshitij Anand, Trivedi said that with the buoyant tax collections this year, the fiscal deficit target for FY22 appears to be achievable, and we expect the fiscal deficit target to further scale down in FY23, giving foreign investors’ confidence to invest in the country. Edited Excerpts - 

Q) What is your call on markets?

A) We have seen a correction of close to 6.5% in the last few days. Multiple ongoing concerns, such as the spread of the COVID-19’s new variant, US-China trade-offs, Russia-Ukraine conflict, Middle East unrest, etc., have had a bearing on the markets, resulting in this correction.

I will call such volatility an inherent part of the market journey. Although even post correction, valuations remain in an expensive zone compared to longer-term averages.

However, investors should use these corrections to increase allocation from a longer-term investment perspective.

Premium valuations are partly capturing the expected improvement in the earning performance of Indian corporate, which was subdued for the last 6-to-7-year years.

Q) What are your expectations from Budget 2022? Do you think the government will be able to meet its divestment target?

A) Union Budget 2022-23 will be presented against the backdrop of renewed uncertainties around the Omicron Covid variant.

However, the limited hit to the economy from the current wave should let the policy focus remain on improving growth potential in the medium term, including boosting the investment dynamics while maintaining the fiscal discipline.

With the buoyant tax collections this year, the fiscal deficit target for FY22 appears to be achievable. We expect the fiscal deficit target to further scale down in FY23, giving foreign investors confidence to invest in the country.

In our view, the upcoming budget is expected to focus on three broad areas of a path towards fiscal consolidation, boosting investment-driven growth through government and private Capex and raising additional resources through PSU divestments and asset monetization.

Q) Which sectors are likely to grab the limelight in this Budget 2022?

A) The overall focus of the budget will likely be on job creation and investment-driven growth, implying an encouraging thrust to infrastructure development.

This can include public infrastructure Capex towards roads, water, metro, railways, defence, digital infrastructure, and green technologies.

Though private CAPEX has been sluggish for the last several years, this area may also be given some push in the upcoming budget.

The extra push towards affordable housing, electric vehicles, green energy, water, roads, telecom infrastructure for smaller towns and rural areas are expected to continue.

Q) December MF data was quite encouraging especially from an equity funds perspective. What is the kind of number you foresee for SIP which has already clocked Rs 100bn?

A) Inflow under systematic investment plans (SIPs) rose to a fresh high of Rs 113 bn in December 2021, versus Rs 110 bn the prior month. SIP has been a medium of consistently investing and disciplined mode of savings by the common person.

Through regular financial literacy, retail investors understand the nuances of managing market volatility and risk adjustment through SIP. An average Indian household holds ~95 percent of its wealth in real estate, other physical goods, gold, and the residual 5 percent in financial assets.

But this is changing, and preference is increasing for financial assets over physical assets. I believe the trend towards the financialization of savings would continue in the longer term.

India Mutual fund is well-regulated savings option with an average investor. This investment option provides a high level of disclosures and offers good liquidity.

Past return performance on various mutual fund schemes (equity) has outperformed other alternate investment options. It is also tax efficient choice for the investor.

With increasing awareness, I would believe that the financialization of saving would improve, and within this, the mutual fund industry should also benefit.

Q) In terms of valuations how are we placed among the Emerging Markets?

A) Indian market valuations, on matrix such as forward price to earnings, have been on the premium side for many years, compared to leading emerging markets.

This premium has further increased in the last two years. However, this is also a reflection of investor faith in India’s stable political system and democracy, stable and growth-oriented policies of various governments with strong regulations towards promoting the interest of minority investors.

It is also a reflection of the longer-term growth potential in the country. India is a large market with India’s overall market capitalisation touching the $3.50 trillion mark (5th largest globally).

We believe India will continue to attract a disproportionate share within the emerging market universe.

Q) What are your top investment themes for 2022 and why?

A) Post low of March 2020, broader markets have given more than 100% return, and it was a broad-based rally. However, from here on we will have to be selective.

We believe companies run by sensible management, having good growth visibility for the long term, having high and good cash flow and ROCE profile will be the outperformer.

We are positive on select IT names, driven by strong growth visibility and a positive outlook on deal wins.  We like select names in financial services. This space has underperformed post pandemic on asset quality and low credit growth concerns.

However, the credit cost impact has been manageable. Companies have strengthened the balance sheet by raising capital wherever required. Valuations are reasonable and the expected pickup in credit growth will also address the growing concerns.

Auto is another space that has seen volume and profit contraction in the last three. The sector has faced many headwinds primarily related to cost inflation for companies and the end consumer.

This has forced many buyers to postpone purchase decisions, especially in pandemic times. However, with pandemic-related concerns easing out and economic activity returning to the normalized level, we expected demand to revive and overall growth in the sector converging towards a longer-term growth rate.  

Q) Renewable and EV became popular themes in 2021 – how do you see the trend in 2022 and which companies are likely to benefit from these themes?

A) India has committed to cutting its greenhouse gas (GHG) emissions to zero by 2070, which is later than the targets for net zero of other large developed and emerging market countries.

India has set fairly stiff targets for renewable energy including 500 GW of non-fossil energy capacity by 2030 and 50% of India’s energy requirement from renewable energy by 2030.

The government may try to achieve the same through a combination of incentives, taxes, and regulations. Companies adapting to the need of the hour profitably will attract investors' attention and are likely to be beneficial in the future.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)