Anand Rathi of Anand Rathi Group
Anand Rathi of Anand Rathi Group anticipates the upcoming Union Budget will address how to strengthen the PLI scheme by bringing more industries within the scope of the policy and increasing the scheme's allocation.
He hopes that the Budget will emphasise the ecosystem of alternative energy, high-tech industries, infrastructure, digital technology, and the hospitality industry.
In India and around the world, the founder and chairman of Anand Rathi Group believes, the highest inflation rates have passed. He anticipates that inflation rates in 2023 will be lower than what is anticipated.
Unless the growth rate decelerates more than anticipated in 2023, neither the US Federal Reserve, nor the RBI are likely to reduce interest rates, says the Chartered Accountant with over 53 years of diverse experience.
Do you expect new PLI schemes in Budget 2023 to boost private capex, with a vision of Make in India?
In recent years, the PLI (production linked incentive) programme has been one of the most innovative industrial policies. The measures aim to transform India into a global manufacturing hub that meets both domestic and international demand. Through this programme, the government attempts to compensate Indian producers for higher production costs in certain areas (such as energy, interest rate, transportation and various operating costs).
On the longer term, structural reforms to improve the production process's efficiency are the solution to the current inefficiencies. In the short to medium term, compensation to producers through the PLI scheme can have a significant positive impact on the Indian manufacturing industry.
Therefore, I anticipate the upcoming federal budget to address how to strengthen the PLI scheme by bringing more industries within the scope of the policy and increasing the scheme's allocation.
Which are five key sectors that could receive the most weightage in the Union Budget 2023?
I anticipate the upcoming federal budget to emphasise the ecosystem of alternative energy (including hybrid/electric vehicles, batteries, and green energy), high-tech industries (including microchips), infrastructure (including roads, railways, and water), digital technology, and the hospitality industry.
Do you foresee any substantial measures to increase rural consumption?
It is widely believed that since 2017, the combination of demonetization, the introduction of goods and services tax, and the pandemic has had a negative impact on rural consumption. Due to the fact that nearly two-thirds of Indians still reside in villages, increasing rural consumption is crucial for both social justice and economic growth. In light of these factors, I anticipate the budget to place a significant emphasis on boosting rural consumption.
Measures likely to increase rural income and consumption may include direct government investment in agro and rural infrastructure, encouragement of private investment in agrarian and rural economy, greater access of rural population to organised finance, increased budgetary allocation for rural development, and targeted direct benefit transfer to specific disadvantaged categories in the rural area. Increased funding for rural job creation is also likely to be included in the union budget.
What could be a possible factor in the Union Budget that could dampen the mood of the stock market?
Since 2016, for the first time since the introduction of the Nifty50, the benchmark index has generated positive returns for seven consecutive calendar years. During this period, Indian stocks have been one of the best performing equity assets globally. I believe the Union Budget would avoid upsetting this apple curd. Consequently, I do not anticipate any major negative budget announcements that could dampen sentiment on the stock market.
In addition, it should be kept in mind that a substantial portion of the central government's revenue, including proceeds from divestment, capital gains tax, and securities transaction tax, is directly correlated with the sentiments and transaction levels of the equity market. Therefore, it is in the government's best interest to further stimulate the equity market.
Additionally, there is a severe lack of risk capital in India, and the primary equity market is a significant source of such capital. Under the government's current strategy of investment-led growth, primary capital raises can have a significant impact on economic growth.
Although unlikely, any announcement in the federal budget that increased the holding period or the rate of long-term capital gain taxation or the rate of securities transaction tax for equity transactions would be detrimental to the equity market.
Do you believe the corporate earnings season thus far has met your expectations? What are your key takeaways from the management commentary regarding FY23 and FY24?
Approximately 20 to 25 percent of companies have released earnings announcements for the quarter ending in December 2022. With approximately 12 percent year-over-year earnings growth for the Nifty50 companies (those that have reported results thus far), the earnings season is generally in line with expectations. At the sector level, however, there is significant divergence, with financial companies performing better than anticipated and global cyclicals and export-oriented sectors, such as oil and gas and information technology, performing slightly below expectations.
I believe that the management commentary is typically cautiously optimistic. Due to factors such as possibility of global growth deceleration and high fund costs, the near-term commentary remains cautious to negative. Nonetheless, according to corporate commentary, the medium- to long-term outlook remains largely positive.
Do you expect the Federal Reserve and the Reserve Bank of India to reduce interest rates in the fourth quarter of 2023?
Globally and in India, the highest inflation rates have passed. I anticipate that inflation rates in 2023 will be lower than what is currently anticipated. Moreover, the growth outlook has begun to deteriorate. These factors should ideally result in at least a moderate reversal of aggressive rate hikes and liquidity withdrawal by the world's major central banks, including the United States and India. However, unless the growth rate decelerates more than anticipated in 2023, neither the US Federal Reserve nor the RBI are likely to reduce interest rates.
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