Budget 2017 Key Facts

Key takeaways from Prashant Jain’s  talk (ED & CIO of HDFC Mutual Fund)His take on the Budget:

Its a no-nonsense Budget
Once GST is passed,Budget will become a simple boring affair
For first time in 25 years,he was able to leave office by 7-30 pm on Budget Day as there is no major policy changes in the Budget
His take on the Modi Govt:

It is a very purposeful and determined Govt
The Govt has a few priorities and all its actions can be seen from this framework:
Reduce the fiscal deficit: This will result in low inflation,low interest rates and more resources for the private sector
Increase tax revenues: Demonetization and GST leaves a trail that will widen the tax revenues
Stopping wasteful expenditures: Direct Cash Transfers using Aadhar and Bank Accounts have reduced siphoning off of funds
Improve service delivery to common man: Every scheme now has an “outcome based” approach instead of “outlay based” approach.For example,outcome of all villages electrified,133 kms/per day of roads,10L ponds under MNREGA etc
Simplify: Using Technology to simplify processes and doing away with redundant laws, policies and practices
Environment:  Supporting sources of energy like wind,solar etc
In the coming years, India will definitely reap the benefits from all the work done by the Govt
His take on Demonetisation:

Short term pain for medium and long term good for the people of India
No impact on this in the next Quarter
Full effect was not realized due to collusion of Bankers
His take on the India Growth Story:

India is a secular growth story
It’s gowth increases every year  irrespective of domestic and global conditions
The reasons are as follows:
Demographics
Change from Joint to Nuclear Families
Low penetration of products/services
Faster and shorter product cycles
Real growth in India can cross 8% in the coming years
Why some companies are not growing despite GDP growth:

He gave example of Unilever.Said three reasons why it’s sales are stagnant:

Penetration levels are high.Soaps are there is most households…there are no new customers to be acquired
Aspirations levels are high.As the consumer’s income increases,he is not going to buy more soaps…he will use the money elsewhere
Competition-As new players like Patanjali come in,they take away market share for existing players as the size of the pie cannot be increased much
Two Sectors of the Economy Doing Badly:

Real Estate-There is a tremendous demand for real estate but high prices makes it unaffordable. Suffers from high demand,low affordability syndrome
Private Capital Expenditure- India does not require a power plant for the next 7/8 years.Private players in infra have been burnt badly
Macro Indicators of India are excellent:

Between FY2013 to FY 2016:

GDP Growth  increased from 5.6% to 7.6%
Fiscal Deficit reduced from 4.9% to 3.9%
FDI as % of GDP increased from 1.1% to 1.7%
Current Account Deficit reduced from 4.7% to 1.1%
CPI reduced from 10.2% to 4.9%
10 Year GSec Yield reduced from 8% to 7.5%
For the first time in the history of India ,FDI is more than CAD.

His take on the Sensex:

Sensex is a very simple animal-it is a slave to earnings
Short term moves are unpredictable
Long term it has given a return of 15% CAGR in line with growth of economy
Foreigners understand Indian equity markets better than locals.
Their shareholding% of BSE 200 Companies has increased every year.In March 2001,it was 12%.By March 2016, it stands at a whopping 25% !
Feels Indians should hold equities like they hold gold-for 10-20-50 years
His take on market cycles:

Indian markets operate on the basis of cycles with clear sector leadership
Between 1995-2000,IT was the Sector leader.Infosys’s PE went from 15 to 300 !
Between 2000-2008,Capex.Banking and Commodities were the Sector Leaders. Jaiprakash Industries and Unilever India had the same market cap !
Between 2008-16, Pharma and Consumer were the Sector Leaders
When one sector takes leadership,all the money goes there and the rest of the markets become very undervalued
Now the time is ripe for beginning of a new market cycle
This new market cycle is characterised by:
Low inflation
Falling interest rates
Rising Capex
Peaking NPAs
The sector leaders for this cycle would be Corporate Banking,Metals & Mining and Industrials
His take on the Stock Market:

The Stock Market is very undervalued.
The Marketcap to GDP ratio is the lowest in 10 years
His take on various Sectors:

Corporate Banks-Bullish-NPAs are peaking,Banks are able to recover (e.g. Essar Oil).Makes an interesting point “Don’t confuse NPAs with losses.NPAs are an accounting entry,Loss is permanent erosion of Capital.”
Metals-Bullish-Feels cycle is turning.Both Tata Steel and JSW Steel have announced fresh capex plans
FMCG-Bearish-Feels low inflation environment does not favor them.Also,they are expensive
Pharma-Bearish-Feels they are expensive
Two Wheelers-Bearish-Feels their penetration is v high.Already 50% of Indian households own a two wheeler
Auto-Bullish-Increasing incomes,increasing aspiration and low penetration
Telecom-Confused-Not sure how new entrants will further act.Not possible to get multi-baggers from here
IT-Confused-Not sure how this sector will play out considering various headwinds
Insurance-Bearish.Three reasons:
Expensive valuations
GST may increase tax rates for insurers
India is not under-penetrated as far as insurance is concerned
Consumer/Lingerie-Bearish-Says super expensive trading at peak valuations
Forward...