Equity markets are well suited for long-term investments and wealth generation, says B Gopkumar, MD & CEO, Axis Securities. In an interview with MintGenie, Gopkumar noted that he expects railways, construction, capital goods, defense equipment manufacturers, fertilizers, and agrochemicals to be the sectors in focus for the upcoming budget. Edited Excerpts:
2023 is likely to remain a volatile year. What budget announcements can help reduce some pressure on the markets?
We believe that actions towards including the Oil & Gas sector under the GST ambit and laying a roadmap to lower corporate tax rates to 15 percent for making investments attractive could help reduce the market pressure.
Corrective steps to lessen the pending receivables of infrastructure companies from government undertakings through the quick dispute resolution process can also be helpful. Additional measures pushing State Governments to take care of the State Electricity Board's financial health, and any possible announcement on abolishing long-term capital gains tax in equity, probably by changing the definition for long term to three or five years, are a few other important announcements to bring cheer to the market.
On the spending side, higher capital expenditure allocation for infra and defense can further help boost sentiments. Tinkering tax slabs on direct tax rates or increasing limits (medical insurance or 80G) for exemptions to ensure more in-hand money to individuals can boost the consumption sector.
On the contrary, what Budget announcements can lead to a correction in the Indian indices?
A significant increase in social spending through subsidies, impacting the fiscal consolidation roadmap of the government, can correct the indices. Furthermore, an increase in the holding period for equities to classify for long-term capital gains tax without corresponding lowering of the tax rate, and a forward move on the idea of Universal Basic Income, can lead to a correction in the Indian indices.
What are your expectations for this budget?
On the expenditure side, substantial investments in infrastructure development and higher capital expenditure in defense, with a majority reserved for domestic sourcing, should be expected. Significant steps to boost investments in manufacturing by the private sector by extending PLI benefits to more sectors and a roadmap to reduce corporate tax rates would go a long way to improve employment generation, increase exports and promote economic growth.
The FM might announce further steps to practically link the local mandis to the E-NAM network, with the support of State Governments, to upgrade farmer income. We also expect the government to stick to its fiscal consolidation roadmap, and any slippage to it should be for capacity creation which will elevate the long-term growth potential of our economy.
Which sectors are the most in focus in this budget?
We expect manufacturers, fertilizers, and agrochemicals to be the sectors in focus for the upcoming budget.
What are your views on capital gain taxes? Should they be tinkered with?
There is a talk about harmonizing capital gains taxes across investment instruments with respect to rates and tenors, and we need to see the government's approach toward this step. In our view, equity markets provide risk capital to entrepreneurs and should be encouraged by lower taxation. The government should encourage investors to stay invested in equities for the long term and abolish long-term capital gains.
How can the budget help boost the manufacturing sector?
We believe the government should extend the PLI schemes to other sectors, which can help attract investments in those sectors. Reducing corporate tax rates can also help India garner a higher share of manufacturing, which is currently moving from China. Apart from this, lowering the compliance burden and simplification of approval process and clearances can go a long way to boost the manufacturing sector. Additionally, inserting the made-in-India clause for procurement is another way where the budget can help identify products currently imported but can be manufactured in India or at least for Government tenders.
Do you think there will be an important announcement regarding the auto industry this year?
We do not think there will be anything significant for the auto industry in the upcoming budget.
Keeping the budget and another rate hike expected in Feb, would you advise investors to shift to fixed-income assets?
We believe equity markets are well suited for long-term investments and wealth generation. Market volatility, like what we saw last year, should be used to increase one's equity allocation in the overall portfolio. Similarly, if there is any short-term volatility due to an upcoming budget or rate hike, it is advisable to increase equity allocation to generate long-term wealth.
One key piece of advice you would give new investors
Investment in equities is one of the best ways to generate long-term wealth for an individual. But, it is also crucial to be disciplined and invest with a long-term investment horizon. If you don't have the time to research the markets and the stocks, it is always a good idea to take professional help.
