The document summarizes a presentation on the finance budget for 2016 and its impact on capital markets. The presentation covers the domestic and global macroeconomic outlook, key aspects of the finance budget such as a focus on agriculture and infrastructure spending, and sectors that may benefit or be disadvantaged. The presentation recommends remaining invested in equities, with a focus on bottom-up stock picking and sectors like infrastructure, rural consumption, and private sector banks that are expected to benefit from the budget.

1. Finance Budget 2016
- Capital Markets
CA. Nipun Mehta
ICAI – WIRC
Mulund CPE Study Circle
Saturday, 5th March 2016

2. ! Domes'c Macro Outlook
! Global Macro Outlook
! Impact of Finance Budget 2016
! Market Dynamics
! What Should Investors Do?
AGENDA
CA. Nipun Mehta

3. Domes'c Macro Outlook - The Back drop
Economy on Stable FooJng DomesJc/ Global Concerns
" Stable, sideways economic
growth
" Infla'on under control
" Fiscal Deficit Under Control
" Monetary policy easing
" Commodity prices soQening
" 2 Poor Monsoons – Low Rural
Spending
" Weakening Currency
" Weak Global Outlook
" FIIs exi'ng Emerging Markets
Corporate Earnings Bank NPAs
" No Turn in Capex Cycle
" Low Business Confidence
" No Major Projects Announced
" Falling Revenue Growth
" Improving Margins
" Huge PSU Bank Provising
" Rate Transmission Not
Happening
" RBI Review
CA. Nipun Mehta

4. ! Severe Global Slowdown – Europe, China, Japan
! Nega've Interest Rates – Japan, Switzerland, Germany, Denmark,
Austria, Netherlands, Sweden
! Several Rounds of QEs/ Bond Buying Globally
! China Slowdown & Currency Devalua'on
! Crude Prices at Mul'-Year Lows
! Global Bear Markets in Equi'es
! Global Bear Market in Commodi'es
Global Macro Outlook
CA. Nipun Mehta

5. ! 637: Rate cuts since Bear Stearns imploded in March 2008
! $12.3 trillion: Asset purchases through global QE programs
! $8.3 trillion: Global debt yielding zero percent or less.
! 489 million: Population of countries with official policy rates
! of less than zero.
! -0.93 percent: Yield on the two-year Swiss bond,
! the lowest-yielding government debt in the world.
! (Source: BoAML Report)
Global Macro Outlook - IMPACT
CA. Nipun Mehta

6. ! US Fed Rate
Global Macro Outlook – US Interest Rates
CA. Nipun Mehta

7. /images/investoralert/_2016/
Global Macro Outlook–Global Interest Rate–Historical Lows
CA. Nipun Mehta

8. Global Macro Outlook – Historical Crude Oil Price
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9. Global Macro Outlook – China Growth Rate
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10. The Broad Budget Agenda
Agricultural
Growth
Fiscal
Prudence
Ease of
Doing
Business
Infrastructure
Spending
Financial
Sector
Reforms
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11. ! Huge Focus on Agriculture
- Crop Insurance Scheme
- Sops to increase Rural Spending – MNREGA, Social Schemes
! Sharply Higher Infrastructure Spending – on Roads, Ports, Railways
! Fiscal Prudence – Maintain Fiscal Deficit at 3.5%
! Bank Recapitalisa'on – Rs.25,000 Cr., Bankruptcy Code – Is It Enough?
! Taxing The Rich
- DDT – Dividend Income > Rs.10L – Individual, HUFs, Firms– Impact on
Wipro, RIL, TCS etc
- Higher Surcharge for Income > Rs.1 Cr.
- 1% - 4% Cess on High Priced Cars > Rs.10L
! Total Service Tax (Including Cess) – 15%
! Increase in STT on Op'ons – 0.0172% to 0.05% - Impact
What has the budget delivered?
-
CA. Nipun Mehta

12. Equity Market Dynamics
CA. Nipun Mehta

13. Market Dynamics – FII/ DII Flows
" Huge FII Ouklows from India/ Emerging Markets since August 2015
" DIIs have turned Net Buyers and Are Witnessing Accelerated Flows
CA. Nipun Mehta

14. Market Dynamics –DII Holdings Rising
" DIIs Holdings in Indian Markets Are at A Mul' Year High
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15. Valuations – factoring positives
• Mid cap valua'ons have been at a 10-year high against the frontline market
• From now on performance would track earnings delivery
• Mid caps would Con'nue to benefit from - improving macro, declining input and
interest cost and favorable eco-system
• Large Caps Having Global Exposure could suffer
CA. Nipun Mehta

16. Domestic investor underinvested in equity assets
Share of Equity Investments in Total Financial Asset at Cost
13%
11%
9%
7%
5%
3%
1%
-1%
F1971
F1973
F1975
F1977
F1979
F1981
F1983
F1985
F1987
F1989
F1991
F1993
F1995
F1997
F1999
F2001
F2003
F2005
F2007
F2009
F2011
F2013
• Last cycle savings attracted by physical
assets
• Financial Assets as % of savings are just
45% - Only 4% of these are in equities
• Equity flows would track the equity
returns and the excess returns of Equity
over Gold have turned positive
• Improved attractiveness and Interest of
domestic investor in Equities provides for a
long term bull case in Indian Equities.
overGold
Excess 5-year CAGR Equity Returns
Excess Equity Savings over gold
(RS)
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
40%
30%
20%
10%
0%
-10%
-20%
-30%
1992
2014
1996
1998
2002
2004
2008
2010
2000
2006
1994
2012
Source: SEBI, BSE, NSE, Bloomberg, Morgan Stanley CA. Nipun Mehta

17. What Should Investors Do?
CA. Nipun Mehta

18. Beneficiary Sectors
• Infrastructure/ Road Sector focused companies : Alloca'on to Roads up 125%
• Railways and Rural Consump'on
• Low Cost Housing - Housing Finance Companies
• Cement
Sectors disadvantaged
• Tobacco Sector : Excise hit con'nues
• Tax on Automobiles – 4 Wheelers
Equity – Which sectors will benefit?
CA. Nipun Mehta

19. Equity Market outlook and Portfolio Positioning
Event behind us, what next ..?
Markets would navigate
• Corporate earnings
• Global events and resultant FII flows
• On-the-ground ‘action’ - Reforms
Our Stance & Focus
• Back to basics – with more emphasis on bomom up stock picking
• Mid Caps would provide more opportuni'es
• Remain biased towards
- Companies with Moats
- Disrup've Businesses
- Companies with Cash
- Companies with Access to Bank Capital – Deleveraged Balance Sheets
- Rural Consump'on
CA. Nipun Mehta

20. Key Overweight
• IT
• Pharma
• Rural Consumption – White Goods, 2 Wheelers
• Cement
• Consumer discretionary – 7th Pay Commission Spending
• Private Sector Banks, HFCs
Neutral
• Public Sector Banks
• Capital Goods
Underweight
• Oil and Gas
• Industrial metals
• Telecom
Portfolio overweight and underweight sectors
CA. Nipun Mehta

21. Thank you
CA. Nipun Mehta