Home >Politics >Policy >Would rate FM’s budget at 5 on 10: Saurabh Mukherjea, CEO, Ambit Capital
Saurabh Mukherjea. Photo: Aniruddha Chowdhury/Mint
Saurabh Mukherjea. Photo: Aniruddha Chowdhury/Mint

Would rate FM’s budget at 5 on 10: Saurabh Mukherjea, CEO, Ambit Capital

Saurabh Mukherjea applauds Arun Jaitley's move of providing small stimulus, but raises concerns over silence on the GST and lack of signifiant moves towards banking sector reforms

Saurabh Mukherjea, chief executive of Ambit Capital Pvt. Ltd, said he would rate Union finance minister Arun Jaitley’s budget at 5 on a scale of 1-10. While he applauded Jaitley’s move of providing small stimulus, he raised concerns over silence on GST (The Goods & Services Tax) and lack of signifiant moves towards banking sector reforms. Mukherjea, prefers FMCG (fast moving consumer goods) and pharma sector in the Indian markets, but expresses concerns that with better chances of returns from US treasuries, emerging markets at large are not a lucrative bet: Edited excerpts.

How do you view the budget?

He (Jaitley) has done a reasonably good holding job of trying to give a small stimulus to the economy by spending more on rural India, by giving tax cuts to the lowest end of the income tax spectrum, without giving up on a slightly lower budget deficit, in very difficult circumstances. You have an economy where growth clearly is slowing down. We have travelled around the country, and met companies and it is pretty clear that there is a pronounced slowdown.

Also, next year we know that GST will come in; there will be limited visibility on the revenue picture. The FM is trying to maintain fiscal sanity, while giving a small stimulus.

Where I think the budget leaves some serious questions unanswered, are on couple of issues. Firstly, there is no mention of timeline or fiscal impact of GST. I suspect that there are probably very sensitive discussions underway at the GST council on these subjects, which is probably why FM has kept his mouth shut on such an important subject.

The other big area I would say is the banking system. As everyone knows, it is under severe stress, and it gets worse in light of the economic slowdown. There is just a token allocation of Rs10,000 for recapitalization of the banking sector.

If you were to rate it on a scale of 1-10, what would it be, with 1 being worst and 10 being best?

I would put at 5. As I said, the above serious economic issues have been left unaddressed, but otherwise he has done a good holding job in difficult times. The glass is half full. He has done a credible job, because he has managed to announce fiscal stimulus for the economy, without abandoning fiscal restraint.

Do you think the 1 July deadline is achievable for GST?

It is difficult to say. I think they have no visibility on the GST council agreeing to that date. On the logistical side, pulling the IT system together, coordinating between the center and the states, coordinating between different parts of the finance ministry, it is a massive exercise .Certainly, the large and mid-corporates I talk to, nobody feels confident they will be able to go live if the deadline is just three or four months away.

The market was lacklustre while the speech was on, but rallied soon after the speech was over? What was triggering the rally?

FM scrapped the 23 December CBDT (The Central Board of Direct Taxes) circular, which had put FIIs (foreign institutional investors) in a tangle, as it said they have to pay taxes in India and it came out of the blue. The budget didn’t contain any anti-rich taxes, barring the surcharge on income of more than Rs50 lakh. These two factors were the sources of relief to the market.

Demonetisation is weighing on economic growth right now, and when GST gets implemented, there could be initial chaos which would lead to disruption of economic growth. How do you see economic growth panning out over the next fiscal year?

As we have said for the last year and a half, the NDA (National Democratic Alliance) has cracked down on black money in a sustained effort. It has multiple parts to it. There have been major legislative changes in 2015 and 2016. The government has said last week, the real estate regulator will go after benami transactions. There will be a major crackdown using the data of demonetisation on people who have deposited a large amount of money between 8 November and 30 December. This is a multi-faceted attack on the black economy.

Given how dependent our economy is on black money, there is a reason economic growth crumbles under this onslaught. The six months to March will be an absolute washout for economic growth. Compared to that, the fiscal year 2018 will be marginally better as the worst effects of the crackdown will be behind us. So, anybody who believes out there that growth will go back to 7% + growth levels needs to reassess that judgment. In the current circumstances, a 5 point something percentage growth for FY18 would be an outstanding achievement.

When do you think investment demand will pick up?

The economic survey yesterday (Tuesday) makes it fairly clear that we can’t really expect a capex recovery in FY18. I wouldn’t be banking on FY19 either. I think we wil be fortunate if get as private sector capex recovery in FY19.

FIIs (foreign institutional investors) inflows in equity markets have dried up recently? How do you see them panning out in the next 3-6 months?

FIIs, as a key driver for the Indian market would gradually become yesterday’s story. That was true in the early stages of development of our market. As the economy will recover and the attack on black money is taking place, the domestic savings are changing from physical assets to financial assets

I doubt over the next two years, FIIs will be meaningful drivers of Indian market.

What is your take on corporate earnings so far?

Earnings have been weak as expected. You had a large private sector bank and a large FMCG (fast moving consumer goods) company announcing degrowth in earnings. When large bellwether stocks of the country are under the hammer, and the IT and pharma sectors are under attack from an American president, and over and above that you have clear evidence of large scale informal sector unemployment, it will hurt Q4 revenue growth and profitability.

The current fiscal year also looks like the one with a zero or close to zero earnings growth for the bluechip companies.

Is the much needed earnings revival round the corner?

It is difficult to believe FY18 will see meaningful earnings growth. This year, of course is a washout year for earnings growth

You have been talking to your clients. How do they view Indian equities in the relative context at this point among emerging markets?

In the emerging market context, India has been and continues to be one of the attractive markets. The question mark that is being raised by the foreign investors is that “If I can get risk-free return in America of close to 4%, which is what the 10-year US bond yield will give, do I really want to go to emerging markets, and take currency risks for a low double digit returns from emerging market equities?"

Which sectors do you prefer the most and why?

In light of the pro-growth spending that FM announced, FMCG seems like one of the better places to be. In spite of US President Donald Trump’s threats, I think Indian pharma sector should hold up.

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