Greetings from team Carnelian.
The FM considered to be an underdog, delivered a splendid Budget 2021 yesterday, akin to what the Indian cricket team delivered in Australia, silencing critics, surprising many & unleashing the animal spirit! Since the time we have been following budgets, rarely have we witnessed one where the FM has addressed all that is required and more! No disappointments.
We have been extremely bullish on India even before the Budget 2021 was laid out (for reasons highlighted in our previous newsletters), but this one makes us even more positive as it clearly reinforces the government’s intent of doing “WHATEVER IT TAKES” to propel the Indian economy towards USD 5tn by FY25. We believe the FM has rightfully seized the mega opportunity when the economy is on a cusp of gaining momentum from China+1 and global digital revolution.
We consider the Union Budget 2021 as a “Carpe diem” event for the Indian economy; “Carpe diem” literally means - “seize the day”. Let’s run through the key catalysts announced in this budget.
Dissecting Carpe diem in context of the Union Budget 2021,
CA - Capex spend & fiscal deficit
R - Relief from tax hikes
P - Privatization
E - Ease of doing business
D - Developing State Capacity & Capability
I - Infrastructure boost
EM - Enabling manufacturing revolution
CA - Capex spend & fiscal deficit
For the first time, the NDA government has indicated that they are ready to let go of fiscal consolidation over growth. Going for a 6.8% fiscal target after a 9.5% deficit requires a lot of conviction and courage. Even wiser, the FM has drawn a huge focus on CAPEX oriented spending - a massive jump of 35% to INR 5.8tn. Several measures have been undertaken to enable capex even in the state budgets, which is a very deep one. The impact of CAPEX lasts over a long time as it builds capacity while impact of OPEX is short lived to a year. Higher capex spend will result into higher second and third order impact such as improving cost effectiveness, higher job creation, growth of various ancillary industry, increasing spending power in the economy (pls refer our previous newsletter for more details on second and third order impact)
Higher capex will also result in re-leveraging of the system and aid financial systems credit growth.
R- relief from tax hike
High fiscal spending without any kind of a tax hike is also BIG indication of the government’ mindset of moving to a lower tax regime. The Government could have easily taken COVIDSHIELD to do a tax hike, but resisted. A wise thing to do was igniting the animal spirit which is far more important than getting a small amount through tax hikes. THIS IS A BIG STATEMENT INDICATING CONTINUITY OF POLICY. India continues to be the lowest tax destination in the world, enticing global investments in a big way. This is a big enabler and the impact of this is very hard to quantify but easy to feel.
P – Privatization
A very big Shift! The FM has used the word “privatization” and not only divestment. Outlining a policy framework of having only 4 strategic sectors and privatizing the rest is a BIG departure from the past. This NDA government was seen weak on their intent of divestment given their track record over the last 5-6 years. This move of focused strategic sale of BPCL, Concor, Air India and divesting two PSB’s and one general insurance is a clear indication of the government’ desire to get out of business. The government also expects the LIC IPO to go through this year. While the obvious immediate goal is raising resources, there is a deep routed intent of removing inefficiencies from the system and re-orient India as a market-oriented economy.
E - Ease of doing business
Several steps simplifying the compliance requirements of business/individuals such as reducing the time limit for re-opening assessments, faceless tribunals, raising the tax audit threshold limit, relaxing norms for startups, investment by NRIs, raising FDI limit in the insurance and many more. This government has continued to relentlessly work towards using technology and reforms to improve the ease of doing business, which is well reflected this time too!
D – Developing State Capacity & Capability
For long-term sustainable development of a country, building state capacity is very essential. This budget has made several announcements on that count.
Health Sector– A multi fold increase in the health outlay is a clear commitment towards building the health infra-India has long been waiting for.
Outlining the Rail vision 2030, implementation of the National Education Policy, allocation towards power reforms, launch of the Development Financial Institution (DFI) to create a lending portfolio of INR 5tn, focus on Developing IFC in the GIFT city, Asset Reconstruction Company to handle bad assets of the banking system are few examples of building state capacity.
I – Infrastructure super boost
The Government’ intent to spend big and spend on infrastructure appeared throughout the budget. Direct measures are being initiated to boost road (8500 km), railways (100% electrification by 2023), new DFCC corridors, urban infra focusing on the Swatch Bharat Mission and metro rails, shipping incentives, power sector reforms are among the few notable ones.
More importantly, the FM has announced a big asset monetization plan to generate resources, which includes NHAI toll roads, Power grid assets, GAIL pipelines, Tier 2 and 3 airports, DFCC, warehousing assets and sports stadiums.
Infrastructure spend always has a multiplier impact on the economy, as it generates demand and builds efficiency.
EM - Enabling manufacturing
Atma Nirbhar Bharat is clearly a big focus area for the government which has been consistently highlighted by the FM during the budget and over the last one year several measures have been taken to grow India’s manufacturing GDP from USD 450bn to USD1.25tn by 2025. This budget has outlined several measures to create and nurture manufacturing capacities and capabilities - PLI outlay of over INR 1.97tn over the next 5 years, 7 textile parks are proposed to be set up over the next 3 years.
We have spoken about this mega trend several times over the last 6 months. The multiplier impact of this is significant as outlined in our previous newsletter.
We believe this budget is strategic, wise and visionary to propel India into a USD 5tn economy and more importantly a statement to the World that India no longer plays by the hand book handed over. It has her own aspiration, vision and approach of building a nation that is aspiring to get her ancient leadership status back at a global level.
Ignore India and her markets at your own PERIL!
At Carnelian, both our strategy viz Carnelian Capital Compounder Strategy and The Shift Strategy are well positioned to capture this huge opportunity!
Disclaimer
Please read this information carefully. Access to this Newsletter is confirmation that you understand and agree to be bound by all terms and conditions. We are registered Portfolio Manager with SEBI vide registration no. INP000006387. Investments in the securities markets, and especially in options, are speculative and involve substantial risk. The information we provide or that is derived from our Newsletter / email/ or any other communication should not be construe as a substitute for any professional investment advice that can be render by a Portfolio Manager. We wrote the reports in the Carnelian Asset Advisors Private Limited (“the Firm” or “We” or “Us”) ourselves and it expresses our own opinions. The Firm has no business relationship with any company nor receives any compensation from any company whose stock is mentioned in the articles. The information included in may include inaccuracies or typographical errors.
This material is for your private information only and is not intended as an offer or solicitation to buy or sell securities.
The information may contain discussions of, or provide access to, certain positions and recommendations as of a specific date. Due to various factors, including, but not limited to, changing market conditions, such discussions and positions/recommendations may no longer be reflective of current discussions and positions/recommendations.
Performance Figures
Performance figures are actual, we cannot guarantee that subscribers will mirror the performance stated on our track records. Past results are not necessarily indicative of future performance.
Therefore, no subscriber or potential subscriber should assume or expect that future performance of any investment or strategy will be profitable or equal historical or anticipated performance levels.
Limitation on the Firms liability
To the extent not prohibited by law, each subscriber and potential subscriber agrees, prior to accessing or using the information provided herein or receiving information provided by the Firm, to release and hold harmless the Firm and its Partners, officers, employees and agents from any and all liability in connection with accessing or using the Firms information provided by the Firm. In all other cases, our liability to a subscriber, whether in contract, tort, negligence, or otherwise, shall be limited in the aggregate to direct and actual damages of the subscriber, not to exceed the fees received by Us from the subscriber. The Firm will not be liable for any consequential, incidental, punitive, special, exemplary or indirect damages resulting directly or indirectly from the use of or reliance upon any material provided by the Firm.
Acknowledgement and Agreement
Notwithstanding any other agreement or other communications between the Firm and Subscriber to the contrary, receipt or use of any material provided by the Firm, at any time and through any means, whether directly or indirectly, represents acknowledgement by such person of this disclaimer and agreement with its terms and conditions.
The terms of use are governed by the laws of the Republic of India. The User hereby consents and submits to the exclusive jurisdiction and venue of Courts in Mumbai, India in all disputes arising out of or relating to the use of service.
Other than as set forth above, any redistribution of the Firm’s Newsletters or e-mails, without the written consent of the Firm, is strictly prohibited.
Comments