Raamdeo Agrawal on portfolio change post Budget

The portfolio has to have at least 50% cyclicals and the new winners which are going to come up, says Raamdeo Agrawal, Chairman, MOFSL.

What the markets are completely ignoring right now are the inflationary repercussions of some of these cesses which have been slapped and which are only coming out in the fine print. What should the markets be focussing on once this frenzy settles down?
This is a relief rally from whatever apprehensions people had in their minds about corporate tax could go up or some kind of a Covid cess could come, HNIs could be asked to pay some more taxes and so there was a very strong feeling that the market is rallying very strongly. It shows that there was a lot of apprehension about the budgetary proposals.

So that uncertainty is behind, corporate tax of 22-23% or 25% is confirmed and most of the provisions stay where they are. The government expenditure last year in a Covid hit period was Rs 34.5 lakh crore. The composition of expenditure is going to shift more towards a capex of about Rs 1.5 lakh crore.

But within that Rs 1.5 lakh crore, it looks like they have proposed a lot of schemes and there are some more investment-oriented proposals with the DFI and other things. But the real thing is insurance going from 49% to 74% FDI and the basic attitude of the government accepting the aspect of minimum government and maximum governance. On that aspect, they have proposed a lot of things but will they be able to execute well? The past track record of divestments have been pretty dismal. As the execution starts, the real growth momentum in the economy will pick up even more.

As the market now is tilting towards infra and corporate banks, do you think pharma and IT could underperform and the outperformance move completely in favour of cyclicals and industrials?
Cyclicals have been obscenely priced so they have to take a rest and the market is already giving indications. All the cyclicals or the new growth sectors — be it manufacturing, automotives, corporate banks,particularly corporate banks are getting impacted by the credit cost.

The current Budget probably gives a hint that there will be a very strong recovery in the economy and the stress on the credit cost side will come down and hence the corporate bank profitability will come back. So all kinds of positivity is building up. The set of companies which are going to do well relatively are going to be different than what it was. The portfolio has to have at least 50% cyclicals and the new winners which are going to come up.

Do you think the government will be able to successfully kick start the disinvestment this time around for sure?
At least the intent looks to be pretty strong. You have to also give credit for not doing it last year as that would have impacted capital markets. Only the second half it picked up. From here, they will get a very good market full of liquidity, global appetite, good outlook, very good forex balance as well excellent food buffers.

All the macro aggregates are very good. My view is that tax estimates have kept a buffer. They have talked about only 15.5% additional tax and total tax mobilisation revenue is very small. My sense is it will be so even if there is a shortfall in the capital received by way of divestment. They have enough cushion on the tax side and so the budgetary numbers will not go anywhere. The divestment should happen though nobody can give any guarantee. The past track record has not been good.

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