Budget 2018 is around the corner and investors are getting uncertain and indecisive. Mostly the risk-averse investors are finding it challenging to choose the right stocks in which they should invest ahead of Budget 2018. Generally, such a scenario tricks the investors in buying defensive stocks rather than momentum stocks, says Shiv Kukreja of Ojas Capital. “So, with the markets touching all-time highs, I think the investors are either turning cautious or getting indecisive. In such situations, the investors move their money to defensive stocks rather than momentum stocks. Sector-wise, IT, Pharma, FMCG and Oil & Gas should find favour. To name a few defensive stocks, I think HDFC Bank, Kotak Mahindra Bank, ONGC, Reliance, Maruti, Bajaj Auto, HUL, ITC and Britannia would be the stocks which could find favour among risk-averse investors,” Shiv Kukreja, Founder & Managing Partner at Ojas Capital, tells FE Online in an interview.
Even the disinvestment candidates offer good opportunity ahead of Budget 2018 for those who expect government to come out with aggressive reforms this time around. “Investors, who would like to bet big on the government’s reform agenda, would buy disinvestment candidates like BEML, IDBI Bank or Dredging Corp, or PSU Banks like Bank of Baroda, PNB, Union Bank or SBI, or infrastructure development companies like L&T, Dilip Buildcon or Sadbhav Engineering,” says Shiva Kukreja. The housing and agriculture sectors also offer a good bet since the Finance Minister Arun Jaitley is likely to focus big on twin targets – housing for all and doubling of farm income, both to be achieved by 2022 – says he.
Here are the edited excerpts of Shiv Kukreja’s interview with Ashish Pandey of FE Online:
Q1. What are your expectations from the Union Budget 2018?
Like every year, I have high expectations from this budget too. I expect Budget 2018-19 to be a game changer for India. I would like the finance minister to put more money in the hands of low to middle income Indians and balance it out by taxing luxury items at a higher tax rate or introducing sin taxes. More importantly, I would like the finance minister to stop tax leakages and make stringent laws for tax evaders.
Implementation of GST has been one of the toughest works for this government in the last one year or so. They have been continuously trying to resolve issues related to GST and has lowered GST rates from 28% to 18% and from 18% to 12% on a large number of goods and services. I think now is the time that the Finance Minister should plug tax leakages and introduce new systems to make tax evasion next to impossible and laws to criminalise tax evasion if caught.
Q2. Which sectors of the economy are likely to be in focus?
Main emphasis would be on the agrarian India, healthcare, education and housing. I expect the budget 2018 to give a much needed boost to the agricultural sector w.r.t. credit support, modern irrigation methods and protection from crop failures. The budget should also take care of the education sector and provide much required support to public schools and national universities. Personally, I would like the government to make primary education free and compulsory for all.
Housing for all by 2022 is one of the targets PM Modi has set for his government. In order to achieve this target, land reforms and cheaper credit facilities are two of the important prerequisites. I think the government should work on these two important issues in the very near future.
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Q3. Will the budget 2018 be populist or reformist?
I expect Budget 2018 to carry a mix of many populist measures and some reformist measures. Firstly, I don’t think the government can really afford not to have some populist measures in this budget as this would be the last full budget of this government before 2019 elections. I think it would be a “Goodies for All” budget. In order to please all (or most of us), I think the finance minister will not introduce any new taxes or tinker with the existing tax rules that are favouring the taxpayers currently. Rather, I think now is the time to reduce the corporate tax rates significantly and move it down to 27% (if not 25% in one go) as announced by the finance minister in his February 2015 budget speech. For the individual taxpayers too, I think there would be an increase in the slab limit of tax-exempt income from Rs. 2.50 lakh to 3 lakh.
In order to balance it out, the finance minister might withdraw certain tax exemptions to make it less complicated and also to curb tax evasion. Moreover, the finance minister would also like to bridge his deficits by taking some tough measures against tax evaders or giving them clear signals to either pay taxes honestly or face the consequences.
Q4. Will Modi govt bring back LTCG tax on equity returns in Budget 2018?
I don’t think so. No wise government would like to spoil the market sentiment for the third time in a row. Though I think demonetisation was a bold step and introduction of GST has been a reformist measure, both these measures have hurt the business sentiment. So, is there any need for any new measure that could backfire and spoil the business sentiment again, and thereby adversely affect your chances of serving this country for another 5 years? My view would be a clear ‘NO’.
Firstly, in an underpenetrated country like India where only 3-5% people invest in direct equities or equity mutual funds, I think the government should introduce more measures to encourage investors to move their investments to equities in budget 2018. Secondly, why would the government want to make it more complicated? The government is able to collect STT on each and every transaction getting executed on the stock exchanges. STT gets calculated on the transaction value and not on the capital gains. So, whether you make any gain or incur any loss, the government is able to collect STT from each of the transactions and that too instantly. So, the idea of imposing LTCG tax on positive equity returns makes no sense to me as it would discourage investors to invest in equities.
Q5. Do you see budget 2018 making dividends taxable in the hands of the receivers instead of being taxed at source via Dividend Distribution Tax (DDT)?
Again, why do you want to put the burden of paying taxes on the taxpayers? It is similar to the STT vs. LTCG tax debate. DDT gets deducted at the distributor level and the government is able to collect it easily and instantly from the distributor. I don’t think there is any reason to just shift this responsibility.
However, there are issues w.r.t. double taxation of such distributed portion of already taxed corporate income. So, if you want to end double taxation on the dividends being declared and distributed, then there should be no DDT at all on such dividends, neither for the distributors to be paid nor for the investors.
Q6. How do you see the markets behaving this year? What are your levels for Nifty, Sensex this year?
Unlike 2017, I expect the markets in 2018 to be far more volatile and unpredictable. I think markets will have some unusually sharp corrections this year, but those corrections will be quickly lapped up by the investors as the opportunities to make an entry or rebalance their portfolios. So, there would be equally sharp upmoves to cover the lost ground.