Which sectoral funds to buy post Budget?

Feroze Azeez, Deputy CEO, Anand Rathi Wealth, says “coming to Vishwas ka Budget, I personally think Pragati ka Budget is definitely on the cards because budgetary allocation for home affairs is about Rs 2 lakh crore; for rural development, it is about Rs 1.77 lakh crore; for agriculture, which is 24% of our GDP, it is Rs 1.27 lakh crore. For the first time, we have had defence exports of about Rs 30,000 crore.”

Further Azeez says: “A sector fund like healthcare, IT, and banking should not be taken, because they are anyways a reasonable part of one’s portfolio in the form of diversified equity funds. So infrastructure surely, and if I have to be more specific, the best infrastructure fund I would vote for would be an SBI infrastructure fund. It is one of the best fund houses and the largest fund house. I would not want to take sectoral or thematic exposure with a tiny fund house, but the largest one.”

Do you think no news is good news, at least from a taxpayer’s point of view.

Feroze Azeez: This is a 10 on 10 budget given the fact that it was a vote on account, an interim budget. The simplicity has been maintained. It has been a theme of under-commit, over-deliver, which I think is brilliant, at least on the economic variables like fiscal deficit. You are looking at 5.9% inflation coming down to 5.8%. It has not been a norm in India, but you see that kind of a trend over the last few years. You look at the tax collection projections.

Last year, there was a growth of 15%. This time, they have just spoken of 12% growth in spite of having penetrated 77% on the revenue target. Still, there is a sense of under-commitment. The borrowing was Rs 15.4 lakh crore, which will go down to Rs 14.1 lakh the next financial year which has definitely improved the yield curve from a flattish yield curve. It has just become a downward sloping yield curve, which I think strengthens our position in the global space which we are today known as one of the largest economies, which is not facing inflation and the resultant interest so that has solidified.

There was a cascading effect on equity being re-valued. So the value of 3,000 points on Nifty from October till now gets solidified because of a lower interest rate. If you get included in the bond indices globally, you are looking at 6.4-6.5% on the 10-year GSEC in the next few months, it definitely brings in momentum on both equity and the debt side. This is the best outcome you could look at. The kind of simplicity definitely creates confidence in the FIIs, who have been pumping in money, even in the smallcap and the midcap space.

So portfolios get protected on the equity side is the key crux, especially after a rally like that. I would be a little worried if some mistake you do has a larger impact. But great, no mistakes, that means solid equity markets, at least buoyant equity markets, if not a rallying ones.

That is right. PM Modi said in his speech after the budget said this is vishwas ka budget. This is an innovative budget where the four strong pillars would be youth, women, farmers, and gareeb (poor). The last time I spoke to you, you said reading between the lines will be very important. From your point of view, what is the takeaway for a voter? Also, from this interim budget, what do you read could be the main focus point in the upcoming full budget?

Feroze Azeez: If the government continues, that is a fair assumption, I am sure most of them would say. If that is the assumption, then if you look at the read between the lines, one thing which has been consistent is simplicity. The simplicity is something which nobody can deny, and this was a great evidence of that. If simplicity is the theme, then of course taxation simplification will be the continuance.

One thing which we have been anticipating and predicting should happen sooner than later in terms of the capital gain simplification of the three-four dimensions, bringing it down to one or two dimensions from the four dimensions which we have. People residing in India have different taxation, different assets have different taxation, different periods have different taxation, different STD status has different taxation. This will, in my opinion, with a large probability change.

Coming to Vishwas ka budget, I personally think Pragati ka budget is definitely on the cards because budgetary allocation for home affairs is about Rs 2 lakh crore; for rural development, it is about Rs 1.77 lakh crore; for agriculture, which is 24% of our GDP, it is Rs 1.27 lakh crore. For the first time, we have had defence exports of about Rs 30,000 crore.

The point I am trying to make is with this, all the variables are looking very bright. I would think that this is a Vikas ka budget. And when you have two crore homes to be built, when interest rates come down, it is a double benefit for the consumer, especially the lower strata of India, slum dwellers or the people who live on rent. If the interest rates are lower, they will be able to borrow and absorb the supply which the government wishes to bring in in the next few years.

For tactical allocation, should any of the sectors be a call for your portfolio right now?

Feroze Azeez: Yes, we can do that. But from a mutual fund investor’s standpoint, what happens is, if you look at Nifty, there are some sectors which are anyways overexposed like 32-33% of Nifty is BFSI. The second largest sector is IT. The third largest is auto. And fourth is consumer staples and consumer defensives.

So what happens is, whenever an investor looks at sectors as or an extra sector fund, he or she needs to be very conscious whether the diversified category itself has a large exposure in them. But having said which themes I think are good, if you are looking at housing as a theme, then there is cement, steel, building material and infrastructure. These are the themes which get encompassed in an infrastructure fund beautifully.

I think a sector fund like healthcare, IT, and banking should not be taken, because they are anyways a reasonable part of one’s portfolio in the form of diversified equity funds. So infrastructure surely, and if I have to be more specific, the best infrastructure fund I would vote for would be an SBI infrastructure fund. It is one of the best fund houses and the largest fund house. I would not want to take sectoral or thematic exposure with a tiny fund house, but the largest one, because of the depth of analysis and the analysts and the fund manager and the experience they have.

So if you are taking a little higher risk, go to the top guys, and SBI is the top one, and I think SBI infrastructure could be a fund if you wish to really play that theme.

What is on your travel bucket list now?

Feroze Azeez: Ayodhya is on my bucket list. Of course, Mr. Rathi was fortunate to be there on the opening day, and we are reasonably envious of him, so we are waiting for our turns. Having said which, of course, I think Indian tourism is going to get some fillip, especially because of the TDS, PCS on global tours, which I think is logical enough.

The way the government has thought about making sure that the people who are honest taxpayers get benefited, and the ones who are evading tax get caught in the tax net, both are being done beautifully. The finance minister said 93 days of tax refund has come down to an average of 10 days and that is no mean task achieved. It is like simplification.

A taxpayer’s biggest benefit is not to give you a three, four, five thousand rupees sop every budget. It is about making your life simple. A pre-filled tax file is such a boon. That is on one side. The TCS collections have not been changed on the tour package. Of course, they have been fair, saying that up to seven lakhs. Now, even if you bought yourself a tour package, you do not have a TCS and a refund to claim. I think that limit was missing. That limit has come this time around.

So I am talking about the spending by youth that the government wants to accelerate and is offering interest-free loans to a particular section of youth spending. What exactly are we talking about over here?

Feroze Azeez: See, when it comes to youth spending, the interest-free loan on the innovation side, the start-up side, the innovation side, this is the first time we ever broke into the top 50 countries from an innovation standpoint. I think youth is largely about trying to propel a start-up culture. Of course, the sunset date also has been extended from March 2024 to March 2025 in terms of the tax benefits which start-ups have that is point one.

Point two, the kind of loans, the 50-year loans, those were the two areas where youth will get benefit. As far as the finance bill is concerned, that is what has come to my notice, which will propel innovation. I think if we have broken into the top 50 countries in the world in terms of the innovation quotient of our ranking, that needs to sustain because that will propel us ahead after about 10-15 years.

If the decade has to be ours, we do not have to do too much on innovation. But if you have to make the century India’s, then innovation becomes a key pillar on the basis of which progress could be made.

The same question to you with a slight tweaking. Give us some top three tips and your expectation as a voter, and obviously, as a market investor?

Feroze Azeez: I would say that this is a phenomenal budget. I am very excited and happy, because it has not spoken anything more than what was needed that I think is brilliant. Then coming to from an investor standpoint, this budget surely helps me submit to all the audience, saying that we in studio rooms speak of 60% equity, 70% equity, and 30% debt, and probably no real estate beyond consumption.

But if you look at India’s allocation out of the Rs 740 lakh crore, the equity allocation is sub 10%. Equity mutual funds are just about 3% to 4%. One is what we assume will be followed by people, and what actually as an aggregate for Indians? Now that needs a dramatic change. If that needs to happen, we have to all introspect and see, if I do not come to 40%-50% equity today, then what are we waiting for? Then if this is not a great recipe for a 40%, 50% in equity markets, then what is?

I think that is where the larger question lies for each of our portfolios. If you are not 40%-50% in equity, you are surely not in the best of the strategies. Of course, markets are going to go up and down. That is the nature of the beast. It does 15% correction every single year from peak to trough and that is why it gives you three times more than an FD, probably. Of course, not always. But I think you deserve that money, extra return over a fixed deposit because of weathering that volatility. Get to 40%-50%. I do not think there could be a better case of at least having 50% of your money in financial assets, especially equity.

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Harry Byrne

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