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Capex-led growth to kickstart investment; agri, infra, consumption sectors attractive | LIC MF INTERVIEW

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The Union Budget 2021 helped fuel Dalal Street to 9% rally in the previous week, and the benchmark indices continued to trade near fresh all-time highs. Diving into the fine-print of Nirmala Sitharaman’s third budget, Yogesh Patil, Fund Manager – Equity, LIC Mutual Fund tells Kshitij Bhargava of Financial Express Online, where he sees opportunities now. Patil explains how investors should look at valuations and discusses positive triggers for PSU banks after the Budget. Here are the edited excerpts.

What sectors look the most attractive to you post the budget?

Will infrastructure be a big theme to be played in the next few months now? 

Infrastructure got significant focus in the budget with the coverage being broad-based, across road, rail, shipping, power to name a few. When infrastructure sees an uptick it has a multiplier effect in the economy spurring economic growth. We welcome this move of capex-led growth which would kickstart the investment cycle and could then spread to multiple sectors – Cement, Auto, BFSI, Metals, and Capital Goods. While we refrain from commenting on stock-specific ideas, businesses which are scalable, having a clear competitive advantage and capital efficiency would be where our focus will stay.

Banks look strong after the Union Budget; is it the time to now closely watch PSU banks?

Proposal to set up an Asset Reconstruction Company (ARC) & Asset Management Company (AMC) to consolidate and take over the existing stressed debt of public sector banks will help clean up their books, which have high levels of provisioning on their stressed assets, which were created over the last couple of years. Overall, this will help PSU Banks focus on funding new growth at the margin.

What negative triggers do you spot for equity markets post the Union Budget?

Abnormally high levels of net market borrowing programme (Rs12trn) could lead to pressure on bond yields. Furthermore, divestment targets are still aggressive. We need to watch out if this is achievable this year, unlike the past few years.

Valuations have been a worry for some investors; how should they look at high valuations right now?

Firstly, we would like to advise investors to take attention away from index levels. An investor should have clarity about the investment objective in terms of time horizon, specific financial goals to be met. It should be complemented with their understanding of where they stand on risk-taking ability and appetite. This will give clarity about how an individual can plan optimal asset allocation.

Only after undertaking the above exercise one should look at investing savings into individual stocks. Asset allocation is the most critical factor in determining the investment outcome. For individual stocks, we would avoid being simplistic. One should not change the investment philosophy based on index levels. Sticking to your asset allocations and disciplined investment process is key to avoid taking undue risks beyond risk appetite.

Nafed sells chana below MSP to liquidate surplus stocks

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Saddled with 3 million tonne (mt) of stocks procured mostly in the last two years, the government has started to sell chana (gram) below the minimum support price (MSP) from the buffer held with the National Agricultural Cooperative Marketing Federation of India (Nafed).

Sources told FE that farmer cooperative Nafed has sold chana through open auction at the price ranging between Rs 4,416-4,751/quintal in Rajasthan, Karnataka, Andhra Pradesh and Madhya Pradesh in the last few weeks to bulk buyers. The price realised through open auction by Nafed was against the MSP of Rs 5,230/quintal and Rs 5,100/quintal for the 2021-22 and 2022-23 seasons paid to farmers.

Currently, mandi prices of chana are ruling at Rs 4,300-4,600/quintal and traders say that the government move to sell surplus pulses below MSP will put further pressure on chana prices. Chana price declined by 1.28% in August compared to a year ago.

To dispose of surplus stock, on August 31, the Cabinet had approved the disposal of 1.5 mt of chana from the surplus buffer stock held with Nafed, at a discount of `8 per kg over the issue price, to states for supplying through various social sector schemes.

Sources said that several states such as Karnataka, Gujarat, Himachal Pradesh and Tamil Nadu have envisaged buying pulses at the discounted prices from the government stock.

Also Read: Govt to soon announce sugar export quota for 2022-23 market year: Food Secretary 

The government’s expenses are expected to be around Rs 1,200 crore for implementation of this scheme.

Prior to the beginning of the next chana harvest season in April 2023, officials said that the government aims to create storage facilities.

At present, against the government’s buffer stock norm of 2.3 mt, Nafed has 3.7 mt of pulses. Of this, the chana stock is close to 3 mt. A portion of the stock is close to two years old.

However, in the case of other varieties of pulses, because of lower procurement, the government’s stocks are smaller — moong (0.56 mt), urad (0.08 mt), tur (0.12 mt) and masoor (0.07 mt) — at present.

Due to a record chana production of 13.75 mt in the 2021-22 crop year (July-June), Nafed procured more than 2.5 mt of pulses in the 2022-23 (April-June) season under the price support scheme (PSS), aimed at providing MSP to farmers.

Chana has a share of close to 50% in the country’s production of 27.69 mt in the 2021-22 crop year.

Stating that there is paucity of systematic clearance of pulses procured by Nafed under the PSS, the Commission for Agricultural Costs and Prices (CACP), in its price policy for rabi crops marketing season (2022-23), had stated that “they are found often offloaded in the market at discounted price and this leads to sharp decline in market prices while dampening the prospect for private procurement directly from the farmers”. The CACP has recommended fixing of a reserve price which is linked to MSP for disposal of stocks similar to wheat and rice under the open market sale scheme, carried out by Food Corporation of India.