Ravi Dharamshi, CIO, ValueQuest Investment, says “not all engines are firing. Honestly, exports are not doing very well. Rural consumers are not doing very well. And liquidity is very tight from RBI’s perspective. So, I mean, bulls can always ask for more. But having said that, what we will keep looking for is, those sector specific PLI schemes that actually are yielding good results in some of the sectors and we would want better implementation of those, so that some of those impetus can be carried forward. Overall, I believe the delicate balance between growth and fiscal consolidation, they are doing a good job of it.”

What is going to be in focus today? Just the overall market, what the central bank is going to do next or do you think the Budget holds any significance?
Ravi Dharamshi: Clearly, Budget this time around is even less significant. Over the years, budget has kept losing its significance as a market mover, as an event. But this time around, it is a vote on account or interim budget and so the impact is going to be even lesser this time. But having said that, a couple of key things that we are going to keep looking for is whether we sustain the growth impetus, how much is the focus on fiscal consolidation, and where the priorities lie of the government in terms of spending money. I guess those are the broad themes we will look for to understand whether there is a continuation of what has been happening till now. And for all practical purposes, it looks like it will be a continuation of that. But the real thing will come in July when, if this government comes back, the policy stability and budget continuity will depend on re-election of this government.

Is that a clear consensus?
Ravi Dharamshi: We will have a clearer picture. It is about the future and it is about reading the minds of 140 crore people, so you can never say with certainty, even though it looks like the wind is blowing in favour of the current government coming back. So, however small an if, it is something that we should keep in mind.

What is the next trigger for the budget? When you frankly think about it, whatever bulls ever thought of, they have got it. Lots of local liquidity, earnings, strong growth, stability in terms of taxes, inflation which is predictable, and now the wind like you said, the political wind is in the right direction. So for markets to go higher now, I am just wondering, what is next?
Ravi Dharamshi: Not all engines are firing. Honestly, exports are not doing very well. Rural consumers are not doing very well. And liquidity is very tight from RBI’s perspective. So, I mean, bulls can always ask for more. But having said that, what we will keep looking for is, those sector specific PLI schemes that actually are yielding good results in some of the sectors and we would want better implementation of those, so that some of those impetus can be carried forward.

Overall, I believe the delicate balance between growth and fiscal consolidation, they are doing a good job of it. Of course, some or the other thing helps. Crude going down helps a little bit. Tax buoyancy has come through. So, the divestments have always been, I do not know why they even put that number, because it has been a total washout for the last four-five years. So, that is one area of improvement that they can really focus on. If they do manage to collect more money, then there is a scope to spend more money. So, that is what we will be looking for.

You know, and that is exactly the point that when it comes to divestment, now is the best time that we have ever had to go on and do that.
Ravi Dharamshi: Yes. Last year PSUs had the best rally. So one has to be smart about it and capitalise on that whether it is PSU banks or whether it is power stocks on the PSU side, they have given the best returns. So there is a possibility that they can actually get good money, but one has to be smart about it. The execution till now has left a lot on the table.

Given that we have seen that lag in rural recovery, do you think a significant boost to rural infra or welfare could just have a sentimental boost to the markets?
Ravi Dharamshi: I do not expect that in this particular budget. The government has been very focused on bringing fiscal discipline and they do not have the room. With the extension of the food grain scheme, I think they have kind of played out their card on the rural side.

There might be a little bit of tinkering here and there, but the larger path of fiscal consolidation will continue. And this government has not shown inclination to give too much fiscal stimulus. So consumption is something that will have probably come into four, maybe two years down the line once the capex starts to kind of peter out is what I feel. So I do not know. As a thematic, we keep it on our radar, but I do not see a trigger panning out in the immediate future.What are your assumptions for fiscal deficit and more importantly for expenditure commitment. Are these the numbers which in line with what your sense is?
Ravi Dharamshi: Yes, 5.3-5.4%, so about 50 basis points in improvement on the fiscal deficit is largely what we expect. Capex will be between Rs 11-11.5 crore. Net borrowing might actually be a slightly lesser number than what this is suggesting is what I feel. The real GDP growth actually could be higher than this.

You have to understand that this kind of growth is coming despite a lot of the engines not firing. So if there is a pickup in some of those engines, their growth can surprise on the positive side. But from the point of view of what is going to come in the budget, I think this is a fair assumption. The nominal growth expected will be about 10-10.5%. It will not be too much more than that.

You own a lot of PSU stocks. Last time when we spoke that you said you are looking at taking some chips off the table. Budget, no budget. Would you take some chips off the table defence, railways?
Ravi Dharamshi: Yes. In terms of the continuation of the themes, I seriously still believe that railway, defence, financials are still the theme that will continue doing well. But from the point of view of the central government’s ability to push capex from this point on is limited. So the state and private have to chip in now. And that does not necessarily mean the current stocks that have been doing well, will do well. Defence and railway are totally dependent on the central government’s budget. So from that point of view, there can be a little bit of reprioritisation. And however small the risk of the government changing, it is still a risk and the other side of the equation is valuation. Those are also getting a little punchy at this point of time. So it is a smart thing to reduce your risk a little bit.

What could be the themes to look at?
Ravi Dharamshi: Energy transition as a theme and financials.

Energy transition is a big theme. Financial is a big theme. Let us go closer to it.
Ravi Dharamshi: If this entire move towards renewables has to pan out, the most critical cog in the wheel over here is transmission. It used to take five years for a coal plant to come up. But a renewable plant comes up in 12 to 18 months’ time. So the implementation plant timing has reduced by almost one third. Now, on the other hand, the kind of capex that we are seeing in the capacity side increase is almost 4-5x of what the thermal plant is. So more renewable capacities are coming up and much faster.

Now, the problem is the transmission capex takes the same amount of time, which is four to five years. So we actually need to hurry up the timelines of putting up the transmission capex. And the intensity of the transmission capex in the renewables is far higher than what it used to be for a thermal power plant.

So transmission capex is something which is a clear and present opportunity. And it has to be executed over the next 5-7 years for India’s energy transition to be successful. Now, it is not only India. In fact, even globally the same thing exists. So that, I believe, is one opportunity within energy transition that we are evaluating.

I am using HDFC Bank numbers as a benchmark to understand that is it a sector specific issue now because if the best franchise in the bank, which is HDFC Bank, both in terms of brand, reach, customer appeal, if they are struggling to get liabilities, could this really lead to a slowdown of the growth in the banking sector?
Ravi Dharamshi: No, I do not think this is a sector specific issue. Yes, there are some sector specific issues like the liquidity overall in the system is a little low right now. However, whether it is the cost related issues, technology related issues are specific to the bank. They are not across the board. There are other banks which are actually doing quite well and their deposit growth as well as their credit growth is doing very well. So without naming any particular bank, I do not think this is a sector specific issue. And then there are, of course, merger related issue with the bank in question that we are talking about. So that is clearly not a sector specific issue.

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