Ashis Sarangi, SEBI Regd. RIA at Pickright Technologies said that 80 C limit needs revision which is fixed at Rs 1.5 lakh PA for a decade by now. It has to be increased to Rs 2 lakhs apart from the NPS limit of 50k U/s80 CCD.

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In an interview with Zeebiz's Kshitij Anand, Shah said that the abolition of capital gains tax on listed and unlisted stock may occur, as the listed side does not provide much revenue for 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 like 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 into the market, therefore we don't believe it is causing concern.

We believe that the selling by FIIs is causing the market to be jittery. Furthermore, the NASDAQ's decline is having a negative impact on Indian tech equities, despite the fact that some of them have performed well.

The budget must function as a stimulant, but until then, we believe investors should maintain a more stock and sector-specific approach.

We now have retail participation who have become a more powerful driving factor in the market, and any stock that has a poor quarterly result is getting punished. We are bullish on infrastructure, banks & healthcare.

Q) What are your expectations from Budget 2022? Do you think govt will be able to meet the fiscal deficit target? 

A) The Indian economy has big expectations from the government. Common man, middle class, and huge numbers of farmers are expecting the government to take care of their needs.

There are big expectations from the Budget not only about taking care of the poor, farmers, and middle class. Here are few expectations from the Finance Minister:

1 More job creation:

Our GDP & Economy was growing prior to the pandemic, but we had the worst unemployment rates by end of 2019. While the link between economic growth and employment growth is vital, it is also important to consider where jobs are being created: small businesses or large/established businesses.

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

2 Better infrastructure Development:

As urbanization grows, there is growing need to push infrastructure. It is not only about residential units but more about roads, power, rail, healthcare.

Infrastructure projects are capital intensive and necessitate a large inflow of funds, thus the government must effectively utilize capital resources to support growth in the industry.

More FDI will be required to meet the estimated infrastructure growth and accelerate it. So, it is important to figure out what motivates them.

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

3 Encourage young people to start their own businesses. 

4 Agri reforms and farmers' income:

When we emerge from a pandemic, the agricultural industry requires three things. One, easy and enhanced credit for equipment, two, crop insurance to reduce losses, and three, incentivize technology adoption

5 TAX exemptions limit increments

a: Investor community expecting LTCG waiver, which is currently 10%

b: Salaried expecting increased standard deduction Sec 16 which is currently 50k.

c: 80 C limit revision which is fixed at Rs 1.5 lakh PA for a decade by now. It has to be increased to Rs2lakhs apart from the NPS limit of 50k U/s80 CCD.

d: Middle class is expecting incentives on home buying - 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 larger house because of need arises due to work from home and lower interest rates. Any increase in this limit will boost further growth in real estate.

Further Affordable housing criteria limit which is fixed at Rs 45 lakhs. In most megacities, the average price of a 2bhk has gone above Rs 60 - 70 Lakhs

6 MSME:

If we want to keep GDP rising quicker, we can do so with the help of MSME. China has spent the last two decades focusing on this, and they are now the world's largest.

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

We should keep our expectations reasonable as the government has a bigger challenge this year. They have to propel growth at the same time control the rising Inflation.

We are hopeful the budget will have some good surprises for the banking, infra, health care, real estate, and agricultural sectors which will also indirectly incentivize the auto sector.

Q) Any 4-5 things which the government can introduce in the Budget that will most likely boost markets?

A) There will undoubtedly be incentives for manufacturing in India.If we are to meet our GDP targets, we must grow manufacturing, which will result in an increase in jobs.

-Increase in tax brackets, as several of them, such as the 80C limit and home loan interest and principal, haven't been updated in years.

-The abolition of capital gains tax on listed and unlisted stock may occur, as the listed side does not provide much revenue for the government.

-Reforms in healthcare and insurance are urgently needed.

Q) What are your expectations from the Rail Budget?

A) Indian railways though have a huge and wide network of connections to the entire country. In the last fiscal year, the Railways have lost more than Rs 20K crore.

Despite the losses sustained during the Covid-induced crisis, freight accounted for the majority of the Railways' earnings during that time.

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

The expansion of solar-power capacity and the reduction of diesel locomotives may be on the cards, based on the GOVT's commitment to green energy. Plans for additional electrification can be provided.

Q) December quarter earnings have been a mixed bag. What are your expectations from the earnings cycle in 2022?

A) In some sectors, such as banking, technology, and real estate, earnings in the December quarter met investor expectations, while others outperformed. However, rural consumption has had a negative impact on sectors such as FMCG, AUTO, and raw material cost increases in the metal and manufacturing industries.

Boosters given by budget may take some time to come into effect. The future earnings will be greatly impacted by the RBI's monetary policy and inflation management.

So, the Indian earnings cycle is very unpredictable. You never know when you will strike gold, so you must keep your eyes open for every opportunity. Don't try to grow too fast, just focus on profitability and efficiency.

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

But, if you are in a new market, expect some turmoil for the next six months. The one good thing about India is that the market is growing, so you are always in business.

If your sales had dropped by 20%, then you can be sure that your competitors have been hit by 20% or more unless as a company if you have done something grossly wrong.

Q) The big theme which has started to play out is the revival of the Capex cycle. From a portfolio standpoint – how should one play this theme across sectors?

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

Though, instead of doing it yourself, it would be advisable to go in for a professional.  A lot of investors tend to think that the Indian economy is driven only by the IT sector.

This is not the case. Recently, the govt has been promoting manufacturing, which is the fastest way for a country to truly get rich. That is why the Indian economy is full of new business opportunities.

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

As a result, we'll maintain an allocation of 8% to 20%, depending on the portfolio's size and risk tolerance. However, we are limiting the movement to large and midcap businesses and ignoring small caps.

Sectors like banks will benefit from the restart of the Capex cycle since loan requirements will increase. To fulfill the increased demand, businesses must invest more in automation solutions to counteract the effects of a tight labor market and rising salaries.

Here will be keeping the weights constant or a minor increase in the allocation depending on the portfolio.

Q) Value or growth – which theme will pick momentum in 2022?

A) We think value investing may outperform. Value investing is a style of investing that doesn’t require you to guess the next TCS, Reliance Industries or Adani.

It is a very different approach to find investments in the stock market. The main concern is the discounted cash flow of a company. The main idea is that a stock is worth the cash it will make in the future.

The world economy which has been growing fast post the pandemic is going to 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 some tough decisions. But those who survive this period of churn will find that the best stocks will be available, at the cheapest prices to them.

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

Q) We saw plenty of stocks creating wealth in 2021 – but many failed to impress. Should one look at stocks coming out of quarantine because of lockdowns/curfew?

A) We can look for such stocks but going highly aggressive on the theme may backfire. We must look at future cash flows.