What is the anticipation? I know no correction is anything to worry because if election outcome is anything to go by, it will be lapped up in no time.
Sandip Sabharwal: So, one is the liquidity story which is the domestic liquidity gushing around. The second is the overall valuations, like Nikunj was saying, like at market cap to GDP of 155% at valuations which are much higher than historical valuations, we need the budget to deliver actually for the markets to move higher. So, my view is that if the budget disappoints and I think the only way it can disappoint is if they do not give relaxation on personal taxation and those have to be significant. I think incremental tweaks here and there and announcing them as big tweaks or big changes is not going to help. So, they have got a buffer of one lakh crores through the RBI dividend.
They should be bold and give around one-and-a-half lakh crores of relief to individual taxpayers because the multiplier on this is very high. So, one-and-a-half lakhs crores of tax break can actually lead to ultimate incremental consumption boost of nearly three times of that, four-and-a-half lakh crores. So, if four-and-a-half lakh crores get consumed more, they can actually get GST on that which itself covers half of it. So, I think it is a simple math, whether the bureaucrats in finance ministry want to recognise this or not is something we need to see. You do not think any curb on F&O is going to come under the purview of the budget, that is going to be SEBI’s domain?
Sandip Sabharwal: Yes, it is SEBI’s domain. They have to come out with a consultative paper first. So, I think it is a process. It is going to happen and it is a given now, given the announcements which have been coming through both by the SEBI chief a few days back at an event and the yesterday Economic Survey.
So, the curbs are going to come. The extent of the curbs, what are the pressures the exchanges are putting because their profitability gets impacted, substantial brokerage profitability gets impacted. But I think it is very clear that the curbs are coming. It is only a timing issue.
But it would not be via the route of an STT increase, you think so?
Sandip Sabharwal: STT increase makes no sense because for a compulsive punter, it is the margin he has to put. So, as long as, he can put one-and-a-half, two lakhs of margin, he will punt irrespective of whatever is the STT, whatever is the tax, those things do not impact. The only thing which impacts him is that he should be unable to trade and that is the only way it is going to get curbed. But you talked about how consumption could be one of those areas to watch out for and Kunal was just highlighting that data. Nine out of ten times FMCG index has ended in the green, ITC so as well and that is because there have been announcements to spur consumption. Are you willing to make fresh bets within that sector and if yes, are you looking at durables? Are you looking at QSR? Are you looking at perhaps staples? Which category would you first go to?
Sandip Sabharwal: So, I think the most beaten down sector today is the QSR space. You look at stocks like Westlife, Devyani, Jubilant Food or any of them, that is hardly revived.
So, any tax break which comes through, so it will be a definite boost to those companies and that coming on the top of what is a normal monsoon or above normal monsoon, which will ultimately lead to lower food inflation and higher boost overall consumption.
So, things are in place for a consumption boost in India. The only thing we need is some tax incentives to go and supplement it. In any case, there will be a revival in consumption, but then it will be muted if there are no tax breaks. If there are tax breaks, then I think it can be significant. So, QSR space would be first, the durables would be next and then the consumer non-durables.
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But what would it take for interest to come back in infra EPC players and I am talking about the Dilip Buildcon and PNC, etc, of the world and not just L&T because they have fallen off the investors’ radar. What do you think will kind of get the investor back to these companies?
Sandip Sabharwal: See, while the overall infrastructure investment cycle has been very strong, the road sector is something where we have seen it fall off sort of. So, it has gone into a plateau, it has actually declined last year.
It is not fashionable anymore, it is all about defence and railways.
Sandip Sabharwal: Defence, railways or other infra projects like the power projects are getting set up, transmission towers are getting set up, data centres are getting set up, but the road sector still needs huge investments. We have seen the state of Nashik highway, Goa highway, everyone is highlighting that. So, there is investment required there and many of these companies were deeply focused on only that sector and those are the ones who are suffering right now. The rest of the infrastructure is fine.
But what about financials because a lot is expected for MSMEs as well because that was one of the focus areas. Economic Survey talked about how you need to kind of deregulate a lot of sectors as well and provide that push to SMEs as well. Is that something from the micro finance theme that you will be watching out for?
Sandip Sabharwal: See, the flow through of Economic Survey to budget typically historically has been very low. So, I do not know what they can do. The thing which they did where you have to pay the MSMEs within 45 days otherwise you cannot account for it in your expenses, etc, that itself was a very good initiative. I have specifically seen companies or talked to companies who have said that this has greatly benefited them actually.
So, the first stock which has opened is Mayur Uniquoters. A very unusual name. Midcap stock. It is in car ancillary manufacturing.
Sandip Sabharwal: Car ancillary, so car seat covers as well as they do a lot of work on the footwear side. So, if you look at this company stock, it was at the same level almost 10 years back. So, then they went through a tough period where the entire footwear industry went through a tough phase. There was dumping from China and they did well on the auto side.
But then they got a lot of orders from overseas, but the execution was very slow. So, now everything seems to be coming in place. With the now standardisation restrictions on footwear, imports will not be so easy.
So, most of the old stock of non-certified, BIS certified footwear has been sold now. So, from here on we will see revival on footwear. Some of the large orders they have won from global OEMs, they will start getting executed from this year onwards and grow rapidly over the next two-three years. It is a very under-owned stock, not very fancied at this stage. Stock is cheap relative to the midcap universe, like the valuation will be hardly 20-30% of the top-weighted midcaps. So, it is well positioned. So, hold it for two-three years and it should give good returns.
VA Tech Wabag, you have been holding on to this stock for two-three years and it has done rather well. It is a pure play on water purification. How is the business doing?
Sandip Sabharwal: So, the business is going very well, like they won very large orders. Like previous year the order flow was okay. The year prior to that they got huge orders which are now starting getting executed because there is a cycle which is there when the orders start getting executed and turnover comes in.
So, the water space is something which globally now there is a recognition of water shortage. Like 2024 is the warmest year on record and there are water shortages everywhere. So, there will be demand coming in from all sorts of industrial water regeneration, zero water discharge. There are huge orders coming in from the Middle East, etc. So, they are doing very well.