Budget 2022: Incentive for home loans and increase in limit from 80c to Rs 2 lakh are key investor expectations, says Ashis Sarangi

Ashis Sarangi, SEBI Regd. RIA at Pickright Technologies said the 80C limit is to be revised and set at Rs 1.5 lakh PA for a decade now. It should be increased to Rs 2 lakhs outside the NPS limit of 50k U/s80 CCD.

In an interview with Kshitij Anand of Zeebiz, Shah said that the abolition of capital gains tax on listed and unlisted shares could take place, as the listed part does not bring much revenue to the government. Edited excerpts:

Q) Global headwinds seem to have gripped the Indian market. What is keeping the market volatile, and will the budget act as a booster shot for Indian markets?

A) Market volatility is influenced by a number of things. Expectations of a US Fed rate hike have already been priced in by the market, so we don't think they cause concern.

We think FII selling is making the market nervous. Additionally, the NASDAQ decline is having a negative impact on Indian tech stocks, despite the fact that some of them have performed well.

The budget should work as a stimulus, but until then we believe investors should maintain a more equity and sector specific approach.

We now have retailer participation that has become a more powerful driver in the market, and any stock that has a poor quarterly result is punished. We are optimistic on infrastructure, banks and health.

Q) What are your expectations for the 2022 budget? Do you think the government will be able to meet the budget deficit target?

A) The Indian economy expects a lot from the government. The common man, the middle class and a large number of farmers expect the government to meet their needs.

There are great expectations for the budget, not only to take care of the poor, the farmers and the middle class. Here are some expectations of the Minister of Finance:

1 More job creation:

Our GDP and our economy were growing before the pandemic, but we had the worst unemployment rates at the end of 2019. While the link between economic growth and job growth is vital, it is also important to consider where the jobs are created: small businesses or large businesses/established businesses.

It is true that the private sector currently creates more jobs in megacities or Tier 1 cities than in Tier 2/3 cities. The government must take steps to counterbalance this by creating jobs and encouraging entrepreneurship in small towns.

2 Improved infrastructure development:

As urbanization grows, there is a growing need for infrastructure development. It's not just residential units, but more roads, electricity, railways, health care.

Infrastructure projects are capital-intensive and require a large inflow of funds, so the government must use capital resources efficiently to support industry growth.

More FDI will be needed to meet and accelerate estimated infrastructure growth. It is therefore important to understand what motivates them.

The National Bank for Financing Infrastructure and Development (NBFID), which was created last year, needs to streamline its operations.

3 Encourage young people to start their own business.

4 Agricultural reforms and farmer incomes:

When we come out of a pandemic, the agriculture industry needs three things. One, easy and improved credit for equipment, two, crop insurance to reduce losses, and three, encourage technology adoption

5 Tax exemptions limit increments

a: The investment community expects an exemption from LTCG, which is currently 10%

b: Employee expecting an increase in standard Sec 16 deduction, which is currently 50,000.

c: revision of the 80 C limit which has been set at Rs 1.5 lakh PA for a decade now. It should be increased to Rs2lakhs outside the NPS limit of 50k U/s80 CCD.

d: Middle class expects home buying incentives - Section 24 which allows annual deduction of 2 lakhs on interest paid on home loans, people expect more.

As many of them have to take a bigger house due to the need arises due to working from home and lower interest rates. Any increase in this limit will stimulate real estate growth.

Also, the limit of affordable housing criteria is set at Rs 45 lakhs. In most megacities, the average price of a 2bhk exceeded Rs 60 - 70 Lakhs

6 MSMEs:

If we want GDP to keep growing faster, we can do it with the help of MSMEs. China has spent the last two decades focusing on this, and it is now the biggest in the world.

Despite the fact that the government has launched many measures in the past, tax breaks on importing machinery, extended credit lines and sectoral reforms to boost domestic manufacturing.

We need to keep our expectations reasonable as the government has a bigger challenge ahead this year. They must propel growth while controlling rising inflation.

We hope that the budget holds good surprises for the banking, infrastructure, health care, real estate and agriculture sectors, which will also indirectly encourage the automotive sector.

Q) Are there 4 or 5 things the government can introduce in the budget that will most likely stimulate the markets?

A) There will undoubtedly be incentives for manufacturing in India. If we want to meet our GDP targets, we need to expand manufacturing, which will mean more jobs.

-Increased tax brackets, as several of them, such as the 80C limit and home loan interest and principal, have not been updated in years.

-The abolition of capital gains tax on listed and unlisted shares can take place, because the listed side does not bring much revenue to the government.

- Health care and insurance reforms are urgently needed.

Q) What are your expectations regarding the rail budget?

A) Indian Railways however have a wide and extensive network of connections to the whole country. In the last financial year the railways lost over Rs 20,000.

Despite the losses suffered during the Covid-induced crisis, freight accounted for the majority of railway revenue during this period.

As a result, different freight lines will be created, reducing the load on passenger trains while simultaneously increasing revenue.

Expansion of solar power capacity and reduction of diesel locomotives could be considered, based on the government's commitment to green power. Additional electrification plans can be provided.

Q) Earnings for the December quarter were mixed. What are your expectations for the earnings cycle in 2022?

A) In some sectors, such as banking, technology and real estate, earnings in the December quarter met investors' expectations, while others outperformed. However, rural consumption has negatively impacted sectors such as FMCG, automotive, and increases in raw material costs in metal and manufacturing industries.

Boosters given by budget may take some time to take effect. Future earnings will be heavily impacted by the RBI's monetary policy and inflation management.

Thus, the Indian income cycle is very unpredictable. You never know when you'll hit gold, so you need to keep your eyes peeled for every opportunity. Don't try to grow too fast, just focus on profitability and efficiency.

Keep inventory lean and work with a strong cash reserve. If you operate in a profitable niche, you should expect growth in the near future.

But, if you are in a new market, expect some turbulence over the next six months. The only good thing about India is that the market is growing so you are still in business.

If your sales have dropped by 20%, you can be sure your competitors have been hit by 20% or more, unless you as a business have done something very wrong.

Q) The main theme that has started to play out is the revival of the Capex cycle. From a portfolio perspective - how do you play this theme across sectors?

A) The Nifty is currently trading at around 8% discount to its long-term average. This could be considered a good time to increase equity exposure to 5-10% of your investable surplus.

However, instead of doing it yourself, it would be better to hire a professional. Many investors tend to think that India's economy is driven solely by the IT sector.

This is not the case. Recently, the government has promoted manufacturing, which is the fastest way for a country to really get rich. This is why the Indian economy is full of new business opportunities.

Understanding sector and stock demand is essential for a resurgence. Infrastructure companies' order books are growing and the budget will help them grow much more.

Therefore, we will maintain an allocation of 8% to 20%, depending on the size of the portfolio and its risk tolerance. However, we limit the movement to large and mid-sized companies and ignore small caps.

Sectors like banks will benefit from the restart of the Capex cycle as loan needs will increase. To meet the increased demand, companies need to invest more in automation solutions to counter the effects of a tight labor market and rising wages.

This will involve keeping the weightings constant or slightly increasing the allocation depending on the portfolio.

Q) Value or growth - which theme will gain momentum in 2022?

A) We believe value investing can outperform. Value investing is a style of investing that doesn't require you to guess at the next TCS, Reliance Industries, or Adani.

It's a very different approach to finding investments in the stock market. The primary concern is a company's discounted cash flow. The main idea is that a stock is worth the money it will earn in the future.

The global economy that grew rapidly after the pandemic will mature. The next 1-2 years, i.e. until 2023, will be the "value growth" years.

It's going to be tough, and everyone will have to make tough decisions. But those who survive this churn period will find that the best stocks will be available, at the cheapest prices for them.

The reason for this is that we are going to see more mergers and acquisitions over the next year and many of these deals will be value driven.

Q) We've seen plenty of wealth building stocks in 2021 - but many failed to impress. Should we look at stocks coming out of quarantine due to lockdowns/curfews?

A) We can look for such actions, but getting very aggressive on the theme can backfire. We have to look at future cash flows.