The government’s measures outside of the Budget could influence FII inflows to a greater extent than the event itself, says Taher Badshah, senior VP & co-head of equities, Motilal Oswal AMC. In an interview with Mithun Dasgupta, he says the expectations of the MF industry mainly revolve around an increase in tax incentives for retirement funds and a higher exemption limit under Section 80C.
After a tough December quarter, do you see better numbers for PSBs in Q4?
In the quarter ended December, operating earnings of PSU banks grew a modest 12-13% even as disappointing asset quality and higher provisions led to depressed earnings at the net profit level. In our view, while income from core operations is likely to accelerate over the next 2-3 quarters, led by higher credit offtake, recovery in manufacturing and mining sectors and a gradual reduction in interest rates, the asset quality would likely take a little longer to heal.
Reduction in interest rates should help gains in the investment and treasury books in many of the large banks, which, in turn, would drive earnings. The improvement in asset quality trends would also likely differ across banks depending on their loan book profile, pace of loan recoveries and write-offs.
With banks attributing the poor credit offtake to low capital expenditure, do you expect the Budget to emphasise on reviving the corporate capex cycle?
Yes, the Budget would will need to focus on reviving industrial demand and manufacturing. The government’s capital expenditure has been trending at less than 2% of the GDP for a long time even as subsidies have remained elevated at over 2% of the GDP for the past few years. Given the backdrop of lower commodity prices and efforts to reduce oil subsidy, it would be an ideal window of opportunity to reverse this equation.
In this regard, the government’s flagship scheme, ‘Make In India’, will likely be the basis for policies in the Budget. The 25 sectors identified as thrust areas for domestic manufacturing will likely be incentivised to boost production and investments in these focus industries.
FIIs pumped over R10,000 crore into the capital markets in the first two weeks of February on hopes of a growth-oriented budget. Would a disappointing Budget lead to an outflow?
There could be a short-term impact on flows in the event of a disappointing Budget, but over a medium to long term, it would primarily be determined by corporate earnings growth and economic growth, and government measures outside of the Budget could influence the same to a greater extent than the Budget itself.
What are the Budget expectations of the mutual fund industry?
The expectations of the mutual fund industry mainly revolve around an increase in tax incentives for retirement funds and a higher exemption limit under Section 80C.