ETMarkets Fund Manager Talk: Manufacturing theme a decadal opportunity, expect tax sops extension in Budget: Vikas Khemani
These factors have aligned all the stars for India’s ‘manufacturing renaissance’, Khemani, founder of Carnelian Capital Advisors, told ETMarkets in an interview.
Khemani expects more PLI schemes and an extension of concessional tax regime for new manufacturing companies in the upcoming Budget. Edited excerpts:
(Tax breaks, jobs or plan to beat China: What will Budget 2023 offer? Click to know)
After the outperformance in 2022, how do you see India placed within the EM pack in 2023?
India is one of the best placed markets globally in terms of growth, governance and stability profile.The last year’s performance was steep, but was not surprising. I think It will continue for quite some time.
China, which has not done well for many years, can do well this year, but India will continue to outperform in a block of 5-10 years. I firmly believe that India will become an asset class no investor globally will be able to ignore.
Do you see any major downside risks for India from the new round of COVID wave that China is witnessing?
If China opening up puts upward pressure on energy and commodity prices sustainably, it might put short-term pressure on inflation which otherwise, is cooling off. To that extent, the interest rate cutting cycle, which is expected to begin in India in 2023, can get postponed.
Do you expect any major tinkering in taxes in the FY24 Budget? And how conducive do you think market conditions will be for disinvestment?
Given the solid growth in tax revenues, I think the likelihood of any major tax changes is very low. Some talks are going on about removing many saving exemptions limits and increasing the slabs. It might happen, but they are unlikely to be significant.
There might be some changes in the capital gains tax regime, as the government wants to make it simpler. Besides, more PLI schemes, extension of concessional tax regime for new manufacturing companies can also be announced.
The government has made it very clear that they don’t want to be in the business of doing business. In my sense, the government will fasten the disinvestment process in the coming year, if the environment remains suitable. The government has not rushed into divestment at the cost of proper value discovery.
Manufacturing
is a theme everyone is betting on, and your ‘Shift Strategy’ is also based on this theme, with some exposure towards technology. Do you think this theme will see greater traction in the coming years?
Yes. We spotted this theme from August 2020 when the world was barely coming out of COVID, and launched a fund around that. An early spotting has obviously helped our investors, and now, everyone is talking.
I believe India’s manufacturing sector is a decadal opportunity. The confluence of so many factors like China+1, government’s focus on PLI, and improved cost competitiveness has aligned all the stars for India’s ‘manufacturing renaissance’.
It will just increase in the coming years. Our ‘Shift Strategy’ has been specifically designed to participate in India’s manufacturing growth story.
India has started seeing “dedicated” allocations from FIIs within the emerging market basket, rather than being just a part of their EM portfolio. Do you see scope for India to outpace China in the coming years?
EM fund as a basket has not delivered well as one or the other market always doesn’t deliver, thereby generating suboptimal returns. India now has become a sizeable opportunity of its own and more importantly, it looks very promising from a long-term perspective. I think it will become an independent asset class in the way Japan became at one point of time.
How comfortable are valuations for you currently? Do you see other markets within the EM pack being a better bet?
Our market valuation is in the fair value zone. Other EMs might be cheaper, but they don’t have India’s growth and governance profile.
If you look at it from a 5-10 years perspective, India will be the best performing market. In any given year, there can be some markets which can do well, but that’s not predictable.
Do you see any major downside risks to earnings growth for India Inc? In FY24, which sectors do you think will lead the earnings growth for Nifty 50?
We can see a bit of a slowdown in growth in FY24, but we don’t not see any major changes. BFSI, automobile, manufacturing and IT will lead the earning growth for Nifty 50.
Which are the major sectors you would bet on in the near-to-medium term and why?
In my view, the next leg of growth will come from BAM (Banking, Auto & Auto Ancillaries and Manufacturing) stocks.
India with its 4Ds (Demand, Demographics, Democracy & Domestic markets) is uniquely positioned to capture the global shift from China.
Banks are well capitalized now than ever before with tier-1 capital at its best and leverage at its lowest. The NPA problems are behind, and banks are now looking for growth. Banking sector is in the Goldilocks Phase.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
