Dalal Street Voice: Infra, EV and manufacturing themes are long term bets, says Sanjay Chawla of Baroda AMC

Sanjay Chawla, CIO, Baroda Asset Management Company said that currently, infra theme seems to be tick marking most of the boxes. If the same prevails, then we may see the infra theme growing for many years.

Sanjay has over 35 years of rich experience in fund management, equity research, and management consultancy. His last assignment was with Birla Sun Life AMC as a Senior Fund Manager where he managed multiple schemes with different strategies.

In an interview with Zeebiz's Kshitij Anand, Chawla said that the Union Budget presented on 1st February 2022 offers capex-led growth in the economy. This could have a multiplier effect down the road and hence might help sustain the momentum in the coming times. Edited excerpts:

Q) What is your take on Budget 2022? Do you think it managed to address the growing needs of Asia’s third-largest economy?

A) This is clearly a growth-oriented budget. The government has prioritized economic growth over fiscal consolidation in the FY2023 Union Budget.

In the post-Covid-era, India had two major challenges – a) ensure adequate employment opportunities, as well as kick, start investment cycle, and b) Being capex oriented the twin objectives are being met.

The government has budgeted a 24 per cent increase in the capital expenditure to Rs 7.5trn for FY2023 with 33 per cent YoY growth in the key sectors of housing, railways, and roads.

This also includes Rs 1trn (vs 150bn FY22) of support to states for capital expenditure. This can positively impact labour generation and consumption at state levels. However, we need to see how states increases their budget for capital expenditure.

Q) Where do you see markets heading post markets – fresh record highs? Any specific target that you have for December 2022 and why?

A) Equity markets over a period of time mirror the underlying economic growth which drives the earnings.  

Union Budget presented on 1st February 2022 offers CAPEX-led growth in the economy. This could have a multiplier effect down the road and hence might help sustain the momentum in the coming times.

While Indian equities have outperformed most of the equities markets globally in CY2021, we need to see how it pans out in the coming year.

 
Based on IMF’s forecast, India could continue to be one of the best performing economies in the world even in CY2022.

Q) Will Budget 2022 bring PSU banks under focus as it bets big on infra, which could also mean higher job creation?

A) Infra financing opportunity is likely to be huge and hopefully that should offer opportunity to the entire banking sector - both private and public.

Typically, infra financing requires long-term financing. Hence, only those banks which have the adequate risk appetite to take on such asset financing projects to match their liability franchisee would step forward to do business.

Within PSU banks with comfortable Tier 1 capital, should be able to capitalise on this opportunity too.

I think credit growth has been softening for a while and hit the trough couple of quarters back. Corporates are on deleveraging mode. Hopefully, credit growth may get a leg up once the infra spend picks up.

Clearly, the valuation of PSU Banks have also hit a nadir. With the business environment improving we could see some mean reversion in the sector.

Q) What is Good, Bad, and Ugly on Budget from a stock market perspective?

A) On Budget eve, like every year, expectations were running high which are likely to be bellied. This year was no different. There was hope that there would be some relief to individual taxpayers.

What has spooked the Bond markets is the higher market borrowings. This is likely to crowd out the private sector as well as increase the cost of borrowing. This was visible immediately after the budget presentations when the bond yield went up.

Q) Budget 2022 lays a roadmap for the next 25 years for the economy. Should investors, who invest in 2022 have a 10-20-year time horizon?

A) Stock market investors should always take a long term view. It is very difficult to time markets, considering markets get influenced by both domestic and global markets.

Hence, we always recommend investors to take a 10-15 years view on Mutual fund investments.

Q) What was in store for mutual fund investors post the Budget 2022? Has anything materially changed?

A) There are no direct implications in terms of taxation to MF investors. However, the budget offers a longer runway for growth for the Indian economy.

This seems to have a positive rub off on the Indian equities but a negative impact on Bond markets due to higher borrowings.

Q) Post Budget we saw many thematic funds related to infra being launched by fund houses. Why are fund managers chasing infra as a theme and will it be the theme of next decade?

A) Infra is a cyclical theme. Currently, we believe there is an opportunity for investment across the value chain-Financiers, Engineering companies, EPC contractors, and some of the basic commodity companies.

For the theme to play in long term we need to see the viability of such project sustaining over a period of time.

Secondly, the capital and right cost of finance should be available, and

Finally, the entrepreneur should be willing to assume risk appetite to execute the same.

Currently, infra theme seems to be tick marking most of the boxes. If the same prevails, then we may see the infra theme growing for many years.

Q) Budget has a special focus on renewable and as well as a green themes? How will green bonds help support the infrastructure theme? Will the role of the ESG theme become more prominent?

A) The government had previously laid the groundwork for promoting domestic manufacturing under AtmaNirbhar Bharat and production-linked incentive (PLI) scheme for ‘new’ manufacturing industries. It has allocated Rs85 bn for PLI scheme in FY2023BE.

In particular, it has increased the PLI scheme amount for solar PV module manufacturing to Rs240 bn from Rs45 bn earlier.

This will result in all the interested bidders (with a planned capacity of 55 GW) qualifying for the PLI scheme.

We expect a faster transition of India’s electricity sector to solar electricity and help India achieve its medium-term targets for climate change and lower carbon emissions.

FM did mention that as a part of the government’s overall market borrowings in 2022-23, sovereign Green Bonds will be issued for mobilizing resources for green infrastructure.

The issue of Green Bonds will clearly help us achieve our commitments to a low carbon economy.

Q) Any big themes that you think are emerging post Budget 2022?

A) Couple of themes to look from a long-term perspective:

1) Infrastructure. The budget has increased allocation for Roads, housing, and Railways by 33%. This will create demand for cement, metals, trucks

2) EV- Budget talks about creating policy framework for EV infrastructure and battery swapping. While we await details, this should drive shift to EV from a long-term perspective.

3) Budget has allocated Rs 195 bn for PLI scheme for manufacturing of high-efficiency modules, with priority to fully integrated manufacturing units from polysilicon to solar PV modules. This provides support to domestic manufacturers to set up capacity in clean energy.

If I have to conclude on the budget in few words then they would be pragmatic, realistic, and growth-oriented budget.

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