Dear Investor,
This time of the year now and here comes Budget 2022, where we look upon the priorities of the government in terms of spendings. Over the last two decades, watchpoints of budget has changed from scanning for direct/indirect tax rates, exemptions, subsidies impacting each of the sectors to now on the broader theme of the budget. Theme to gauge the direction, setting the path towards, what is important for the nation in the next decade. Budget’22 proposals were a step towards a new and emerging India, setting its stage on the global platform.
Considering the budget proposals, key themes that we see emerging for the next decade of Amrit Kaal the 25-year-long leadup to India@100 are as follows;
Clean Climate:
Proposed additional ₹195bn PLI for manufacturing solar equipment to achieve goal of 280GW solar capacity by 2030.
Battery swapping policy and interoperability (standardization of battery and charging interface) to be introduced.
Sovereign Green Bonds to mobilise resources for green infrastructure. The proceeds to be deployed in public sector projects which help in reducing the carbon intensity of the economy.
Digital Economy:
Proposal to introduce Digital Rupee by RBI, using blockchain and other technologies, starting 2022-23.
Income from transfer of virtual assets to be taxed at 30%, thereby recognising Cryto/NFT.
Extending period of incorporation of eligible start-ups for providing tax incentives.
Digital Ecosystem for Skilling and Livelihood – the DESH-Stack eportal – to be launched, to empower citizens to skill, reskill or upskill through on-line training.
Global Integration: Exports Orientation and Infrastructure development
Outlay for capital expenditure increased by 35% from ₹5.5 trn to ₹7.5 trn (2.9% of GDP).
PM Gati Shakti National Master Plan aimed at world class modern infrastructure and logistics synergy.
Defence R&D to be opened for industry, private bodies & academia – 25% budget allocation.
Simplification & ease of business
Allowing taxpayers to file updated return within two years for correcting errors.
Cap the surcharge on long term capital gains arising on transfer of any type of assets at 15%. This step will give a boost to the start up community.
In recent years, over 25,000 compliances were reduced and 1,486 Union laws were repealed, in the next phase of Ease of Doing Business EODB 2.0 and Ease of Living, will be launched.
The above proposals are clear intents of government to look beyond the micro and build a path for futuristic India!
Huge opportunities in clean tech are emerging right from equipment manufacturing, generation, distribution and thereby use of clean energy. Digitalisation is likely to touch every aspect of business across sectors and horizontals and that is where the giant
engineering talent army of the country is likely to be deployed. Large English-speaking population aided India to IT services and BPO hub of the world, Digital ready talent is likely to enable India to leap forward in the digital world. This will enable businesses to create opportunities quicker, fulfil large scale demand with accuracy and provide timely service. Better infrastructure and increased ease of doing business will facilitate Indian business to integrate with the global clients much faster and thereby build scale. Scale to gain on operating leverage, scale to innovate and above scale to strategies at global level.
Looking ahead..
As I wrote in my last newsletter - 2022 – Year of consolidation and take off for India, markets are likely to consolidate in 2022, the initial glimpse of my views were visible with NIFTY being flat (-0.08%) in the month January’22. Budget proposals are step in right direction for Indian businesses to build upon in a post pandemic digital world.
With manageable fiscal deficit of 6.4% for FY23, India finances are in better position than at ~6.9% in FY22/~9.3% in FY21, despite increased capital spending. Such a situation is likely to keep broader macro parameters within a controllable range and coordinated with global developments. IMF has projected India’s GDP to grow 8.7% in CY 22 and 6.6% in CY23. Further, IMF expects India to be fastest growing nation in CY22/CY23, which is likely to keep the capital flows in far better shape than other emerging markets despite the valuations.
Our portfolio is beneficiary of above themes of Clean climate, Digital Economy, Global integration and Simplification. Export
Oriented sectors i.e Pharma/Agri API, Chemicals, Auto Ancillary, Manufacturing etc are likely to benefit with better infrastructure, initiatives like PM Gati Shakti to enhance its logistics/competitiveness and Clean climate opportunities. Increased deployment of
Digital ready talent is likely to improve employment and earnings which in turn is expected to benefit the discretionary consumption sectors like – QSR, Building material, Beauty/apparel.
While these macro themes do provide top-down ideas, a bottom-up approach of identifying investible ideas resonates well with our portfolio. We will continue to identify and build portfolio of companies with management which focusses on driving efficient growth. Growth that is backed with differentiation, capital efficiency and longevity.
What to do?
Budget proposals are further providing an impetus to multi-decadal transformation journey of India to emerge as a global powerhouse.
Our preference for equity continues to strengthen with every reform that government is proposing, in such a scenario, investor must stay invested despite the noise related to macro global economy. Equities continue to provide best inflation adjusted post tax returns vs any other asset class over a period. Increase in life expectancy will accentuate the need for creating larger corpuses for health, education, and life events.
To summarise, Budget has set a path for futuristic India, based on your risk profile and suitability invest for the transformation that India is expected to go through. Build a portfolio of companies with strong management that can construct and execute on global opportunities at scale, foster talent for longevity and create moats for the capital employed.
Stay invested with prudent asset allocation and focus on what you are best at ! Happy investing in this wealth creation journey!
Logon to https://tikonacapital.smallcase.com/ to know more
Sumit Poddar
Chief Investment Officer & Smallcase Portfolio Manager
Tikona Capital
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