budget 2016 & cap mkt wirc mulund ss_05mar16
TRANSCRIPT
FinanceBudget2016-CapitalMarkets
CA.NipunMehta
ICAI–WIRC
MulundCPEStudyCircle
Saturday,5thMarch2016
! Domes'cMacroOutlook
! GlobalMacroOutlook
! ImpactofFinanceBudget2016
! MarketDynamics
! WhatShouldInvestorsDo?
AGENDA
CA.NipunMehta
Domes'cMacroOutlook-TheBackdrop
EconomyonStableFooJng DomesJc/GlobalConcerns" Stable,sidewayseconomicgrowth" Infla'onundercontrol" FiscalDeficitUnderControl" Monetarypolicyeasing" CommoditypricessoQening
" 2PoorMonsoons–LowRuralSpending
" Weakening Currency
" WeakGlobalOutlook
" FIIsexi'ngEmergingMarkets
CorporateEarnings BankNPAs" NoTurninCapexCycle" LowBusinessConfidence" NoMajorProjectsAnnounced" FallingRevenueGrowth" ImprovingMargins
" HugePSUBankProvising" RateTransmissionNotHappening" RBIReview
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! SevereGlobalSlowdown–Europe,China,Japan
! Nega'veInterestRates–Japan,Switzerland,Germany,Denmark, Austria,Netherlands,Sweden
! SeveralRoundsofQEs/BondBuyingGlobally! ChinaSlowdown&CurrencyDevalua'on! CrudePricesatMul'-YearLows
! GlobalBearMarketsinEqui'es
! GlobalBearMarketinCommodi'es
GlobalMacroOutlook
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! 637: Rate cuts since Bear Stearns imploded in March 2008 ! $12.3 trillion: Asset purchases through global QE programs ! $8.3 trillion: Global debt yielding zero percent or less. ! 489 million: Population of countries with official policy rates ! of less than zero. ! -0.93 percent: Yield on the two-year Swiss bond, ! the lowest-yielding government debt in the world.
! (Source:BoAMLReport)
GlobalMacroOutlook-IMPACT
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! USFedRate
GlobalMacroOutlook–USInterestRates
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/images/investoralert/_2016/
GlobalMacroOutlook–GlobalInterestRate–HistoricalLows
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GlobalMacroOutlook–HistoricalCrudeOilPrice
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GlobalMacroOutlook–ChinaGrowthRate
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TheBroadBudgetAgenda
AgriculturalGrowth
FiscalPrudence
EaseofDoingBusiness
InfrastructureSpending
FinancialSectorReforms
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! HugeFocusonAgriculture-CropInsuranceScheme-SopstoincreaseRuralSpending–MNREGA,SocialSchemes
! SharplyHigherInfrastructureSpending–onRoads,Ports,Railways! FiscalPrudence–MaintainFiscalDeficitat3.5%! BankRecapitalisa'on–Rs.25,000Cr.,BankruptcyCode–IsItEnough?! TaxingTheRich
-DDT–DividendIncome>Rs.10L–Individual,HUFs,Firms–Impacton Wipro,RIL,TCSetc-HigherSurchargeforIncome>Rs.1Cr.-1%-4%CessonHighPricedCars>Rs.10L
! TotalServiceTax(IncludingCess)–15%! IncreaseinSTTonOp'ons–0.0172%to0.05%-Impact
Whathasthebudgetdelivered?-
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EquityMarketDynamics
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MarketDynamics–FII/DIIFlows
" HugeFIIOuklowsfromIndia/EmergingMarketssinceAugust2015" DIIshaveturnedNetBuyersandAreWitnessingAcceleratedFlows
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MarketDynamics–DIIHoldingsRising
" DIIsHoldingsinIndianMarketsAreatAMul'YearHigh
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Valuations – factoring positives
• Midcapvalua'onshavebeenata10-yearhighagainstthefrontlinemarket• Fromnowonperformancewouldtrackearningsdelivery• Mid capswould Con'nue to benefit from - improvingmacro, declining input andinterestcostandfavorableeco-system
• LargeCapsHavingGlobalExposurecouldsuffer
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Domestic investor underinvested in equity assets
Share of Equity Investments in Total Financial Asset at Cost 13%
11%
9% 7%
5%
3%
1%
-1%
F197
1
F197
3
F197
5
F197
7
F197
9
F198
1
F198
3
F198
5
F198
7
F198
9
F199
1
F199
3
F199
5
F199
7
F199
9
F200
1
F200
3
F200
5
F200
7
F200
9
F201
1
F201
3
• Last cycle savings attracted by physical assets
• Financial Assets as % of savings are just
45% - Only 4% of these are in equities
• Equity flows would track the equity returns and the excess returns of Equity over Gold have turned positive
• Improved attractiveness and Interest of domestic investor in Equities provides for a long term bull case in Indian Equities.
over Gold Excess 5-year CAGR Equity Returns
Excess Equity Savings over gold (RS)
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
40%
30%
20%
10%
0%
-10%
-20%
-30% 199
2
2014
1996
1998
2002
2004
2008
2010
2000
2006
1994
2012
Source:SEBI,BSE,NSE,Bloomberg,MorganStanley CA.NipunMehta
WhatShouldInvestorsDo?
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BeneficiarySectors• Infrastructure/RoadSectorfocusedcompanies:Alloca'ontoRoadsup125%• RailwaysandRuralConsump'on• LowCostHousing-HousingFinanceCompanies• Cement
Sectorsdisadvantaged• TobaccoSector:Excisehitcon'nues• TaxonAutomobiles–4Wheelers
Equity – Which sectors will benefit?
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Equity Market outlook and Portfolio Positioning
Eventbehindus,whatnext..?
Marketswouldnavigate• Corporateearnings• GlobaleventsandresultantFIIflows• On-the-ground ‘action’ - Reforms
OurStance&Focus• Backtobasics–withmoreemphasisonbomomupstockpicking• MidCapswouldprovidemoreopportuni'es• Remainbiasedtowards
-CompanieswithMoats-Disrup'veBusinesses-CompanieswithCash-CompanieswithAccesstoBankCapital–DeleveragedBalanceSheets-RuralConsump'on
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Key Overweight
• IT
• Pharma
• Rural Consumption – White Goods, 2 Wheelers
• Cement
• Consumer discretionary – 7th Pay Commission Spending
• Private Sector Banks, HFCs
Neutral
• Public Sector Banks
• Capital Goods
Underweight
• Oil and Gas
• Industrial metals
• Telecom
Portfolio overweight and underweight sectors
CA.NipunMehta
Thank you
CA.NipunMehta