While sharing his views about expectations from Budget 2024, Hemant Shah, fund manager, Seven Islands PMS, in an email interview with MintGenie, says that the government is likely to put a lot of emphasis on infrastructure development with respect to roads, dams and water. He also hopes that the government could to raise the limit of non-taxable income.
While sharing advice for retail investors, he says that three rules for long term wealth creation are value, visibility and validation. He also advises young investors to keep their emotions in check.
Edited Excerpts:
What are your expectations from the Budget 2024?
In anticipation of the Budget 2024, the primary question is whether it will lean towards being a populist budget or maintain its growth-oriented stance. Given the Modi government’s coalition nature, there will likely be pressure from allied parties to secure more funds in the times to come.However, I think this will be a balanced budget. The last two budgets have been heavily growth-oriented, and this trend is likely to continue.
With respect to taxation reforms, we expect some benefits relating to tax slabs, potentially increasing the non-taxable income limit, which would greatly help the common man.
As for the corporate tax, significant changes are unlikely, though a reduction in some surcharges might be on the table.
Importantly, the government has substantial leeway for capital expenditure, particularly with the recent record ₹2.11 lakh crore dividend from the RBI. It is expected that these funds will be allocated towards growth initiatives rather than subsidies.
Do you expect any change in the tax slab or with regards to the capital gains tax on equity?
Regarding changes in the tax slab or capital gains tax on equity, I don’t anticipate any modifications. The current tax rates of 15 percent for short-term capital gains and 10% for long-term capital gains are likely to remain unchanged. However, one area that might see an adjustment is the Securities Transaction Tax (STT).
There is a concern that the STT for Futures and Options (F&O) transactions could be increased, which might be aimed at curbing the inflow of retail investors and making their entry extensive into F&O trading.
There is a possibility that it could be doubled, making it more expensive and less attractive for retail traders. The government views STT as a reliable revenue source, so while a reduction is unlikely, an increment is quite possible. Having said that, the STT on delivery trade will remain unchanged to maintain increased retail participation.
Considering that it is the first budget of the Modi government’s third term, what major themes do you foresee in this Budget such as fiscal consolidation or emphasis on infra?
The fiscal consolidation has already happened. This budget should emphasise infrastructure development especially with respect to roads, dams and water.
Overall, the result season will play a crucial role in shaping market reactions. Despite potential market volatility, the budget is expected to lay out significant plans for infrastructure, continuing the government’s focus on long-term economic growth and stability.
Oftentimes, it is said that retail investors should focus on long term wealth creation and not chase the short term gains. What advice, as PMS fund manager, do you give to investors?
My advice to investors revolves around the principles of value, visibility, and validation. These three rules are crucial for long-term wealth creation:
Value: Invest in stocks that are priced reasonably. It’s essential to wait for the right valuations before investing for the long term. Patience is key—don’t jump into buying stocks at any price.
Visibility: Delve into the business visibility, understanding the target market, competitive edge, and overall sustainability of the business model. Investing in companies with clear and sustainable business models is vital for long-term success.
Validation: Prioritize companies led by experienced, qualified, and ethical professionals. A strong management team with a proven track record inspires confidence and increases the likelihood of long-term success for investments.
It is important for retail investors to avoid chasing short-term gains. The market valuation is extremely high at this point, with many stocks being overvalued. In fact, out of 10 stocks, 9 might be overvalued.
Is there any particular piece of advice which you may want to give to young investors?
Young investors should avoid paying unnecessary fees and refrain from repeating common mistakes and keep emotions in check . While it’s true that many learn by paying their dues in the market, it’s essential to have faith in your investments and maintain conviction, confidence, and courage.
These qualities develop over time through experience and knowledge. Another advice is to be cautiously optimistic. It’s better to miss out on a few investment opportunities than to risk losing capital.