Budget 2015 should be aimed at long-term character building of economy: Bharat Shah
'We need to work towards a disciplined long-term character building of the nation and its economy, be it by way of soft areas like health and education, or hard areas like affordable housing and infrastructure.'
ET Now: Everybody’s eyes are focused on the Budget. Can it be a market-pleasing Budget? Does the government have the legroom to do that with the kind of fiscal deficit numbers we have seen already?
Bharat Shah: That depends on what you think is a market-pleasing Budget. I do not know what your definition of that is.
ET Now: I am asking you for your definition. Do you think what comes out in the Budget will be market-pleasing?
Bharat Shah: If it is spelling out fiscal consolidation, fiscal discipline, right kind of incentivisation for promoting some of the core agenda that the government has spelt out like focus on manufacturing, infrastructure, promotion of soft skills, social sectors like health and education, that is, if it is aimed at building a disciplined long-term character of the nation and its economy, then I think it should be market-pleasing on a long-term basis.
I think it is going to be in the good interest of the market over a period of time and I do believe that there is a space and opportunity to do so.
ET Now: What could we hear from the Finance Minister in this Budget, especially when it comes to infrastructure, road sector, development etc? A lot of hopes are now running high in terms of how infra is going to be a focused area for the government.
Bharat Shah: Let us cross the bridge when it comes. Trying to pontificate on that is not particularly helpful.
ET Now: But would you believe that the focus areas in this Budget could be those multiplier effect sectors like infrastructure, rural housing and defence? They will have a multiplier impact on how jobs are created in the economy. Would that be an obvious suspect?
Bharat Shah: Yes, I think so and I hope so. We need to work towards a disciplined long-term character building of the nation and its economy, be it by way of soft areas like health and education, or hard areas like affordable housing and infrastructure. This could also be in terms of enabling a leap ahead by digitising India in promoting productivity, or in terms of promoting fiscal prudence and discipline so that we do not run out of steam unnecessarily.
If all these are being done - and I believe there is space and opportunity to do so - it is huge positive on a long-term basis for the economy, for businesses and hence for the markets.
ET Now: As avid equity watcher that you are, you also look at real estate very closely and a lot of people are talking very positively from the markets perspective about real estate that these stocks, which have been beaten down so much, are probably priced to perfection and are going ahead could be good, even though we are not seeing enough sales. What is your view on the space at large? Is betting on the real estate stocks a good enough move right now?
Bharat Shah: Real estate by itself is a business and offers a massive opportunity. If your expectations are reasonable returns rather than extraordinary returns, then I believe even today there is an opportunity to make reasonable returns over a period of time.
But getting those returns through the purchase of real estate stocks is another matter. That would depend on the credibility, the quality of balance sheet, the kind of value of the assets and the kind of price.
So, all of those are moot questions, but I am somewhat more sanguine of generating real estate returns through prudent build up of the real estate portfolio rather than necessarily acquiring those returns by buying the stocks in the real estate area.
ET Now: What are your conviction ideas in a market right now? Are you sticking with the cyclicals theme or would defensives be part of your core portfolio?
Bharat Shah: That depends on how you define defensives. Defensiveness does not come from a name tag. Popularly, defensives are described as consumers. That is correct in some sense, but defensiveness comes from the character of the business - whether it is the requisite opportunity, a character of longevity, whether it is a character of replicability - in the backdrop of economic value creating capital efficiency.
Defensiveness also comes from the purchase of a business at a price which is at a discount to the value. So that way, part of defensiveness comes from the character of the business and other part of defensiveness comes from the approach of the investor participating in the market.
Beyond that, the idea of some industries or businesses being defensive is a very general statement and not necessarily a very bright one. I would say a lot of businesses by your definition such as consumer areas, pharmaceutical businesses, even banking and finance where there is a fair bit of churn in the minds of the people over the last few years would be regarded as a huge bulwark in a long term massive opportunity.
If this country is going to progress, it will be inconceivable that the finance and the banks will not perform. So, I find plenty of opportunities in these areas. Even many of the capital goods businesses are very defensive in character. Many automobile businesses, while they do have more nuanced cycles than the consumer businesses or relatively the pharmaceutical businesses, are fundamentally very defensive in character, given the stage and level of progress that the Indian economy has attained. So there are many opportunities.
In agriculture, there are businesses which are promoting efficiency and productivity, such as agri inputs and the like. These are strong, solid defensive businesses. They may have some cycle based on monsoon and some such factors, but fundamentally over a period of time, there were a lot of defensive characters by themselves.
I think rather than trying to hunt for a theme or a trend or a sector, it is far more important to focus on the buying of sensibly priced good quality long-term character businesses. That in my opinion is a good defensive approach, rather than just trying to find some new mega idea which may sound very attractive while narrating, but is so much harder to work out.