- 2/2/2024
Madhusudan Kela shares his outlook on #Budget2024, in conversation with Niraj Shah on ‘Budget Masters’. #NDTVProfitLive
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00:00 Mr. Madhusudhan Kela. Mr. Kela, thanks so much for taking the time out and being with us in our studios.
00:04 Thank you, Rida. Thank you for having me. – No, the pleasure is entirely ours. – Thank you so much.
00:07 What did you make of the budget? Did anything surprise you? – I think overall budget was very good.
00:13 I think surprises were all on the positive side. Honestly, you know, starting with the fiscal deficit of 5.1%
00:21 and more importantly the adherence that in 2026 it will be below 4.5%. That I think was a, you know,
00:32 it was music to the ear and that was like a positive more conviction building thing.
00:39 Second of course the absolute amount of fiscal deficit number being lower than this year.
00:45 The absolute borrowing being lower than this year. This is after many years that would have happened.
00:51 That the net borrowing from the government is lower as compared with the previous year.
00:57 So, I think it is a clear cut fiscal consolidation path by the government. It's a good thing. It's not a surprise.
01:06 But if at all it is a positive surprise. – Yeah, I agree completely. So, some people classified this as a budget for the bond markets.
01:14 The bond budget. Because yes, the bond markets had a, I mean, there is lots in it for that.
01:19 Is it incrementally positive from an equity market perspective as well? Because I mean,
01:27 CapEx numbers while at 10% or 11% growth and maybe the net is 16, 17% because they may not meet the increment of the target of 5.24.
01:34 But it's the percentage growth is lower than last year. So, on so forth. So, is it incrementally… – No, it is actually quite positive.
01:42 If you look at it, see, we can't look budget as only an event, right? Budget is one of the events of the economy. – Right.
01:50 But if I look at, let's say, the bond market, if they do well, interest rate goes down, right? Ultimately, it is a very big benefit to the equity.
01:59 And also don't forget that at least 25-30 billion dollar will come next year because of the JP Morgan bond index.
02:08 Now, if that kind of money comes in, there is a first time we can actually make a case for currency appreciation.
02:15 So, what does that do? Falling interest rate, appreciating currency, stable inflation.
02:22 What does that do to equity and equity valuation? Right? Obviously, it is a big benefit.
02:29 So, I think these are all like two wheels of the same bicycle. Debt and equity.
02:35 It can't be bifurcated that anything which is good for the overall economy will only be good for equity and debt.
02:42 Having said this, of course, debt had lot more direct benefit than equity in this budget.
02:51 Got it. Okay. So, point well taken. So, it's positive maybe for both. Debt may have been the headline.
02:58 In some sense, and now we also probably need to talk beyond the budget as well because as you said it's a bit of an event.
03:05 But just trying to understand, in some sense, do you think that the government has put the gauntlet in the hands,
03:12 let's say, of the fiscal policy, the fiscal work is done. Now, let the monetary policy also chip in and do its work.
03:19 And two, even on the capex front, the government is saying that, you know, we have been front loading capex by aggressive growth in the last three years.
03:27 Now, let's also see the private capex and the household capex come up and do their work.
03:31 I have a different perspective on this capex number. A, if I take our 9.5 lakh to 11.11,
03:38 I think this number for this year may not be more than 9.5 lakh. Agreed. Right.
03:44 So, it is already 16-17% growth. But don't forget government will only work for 9 months in the next year
03:51 because Acharya Saintha will be there because of election. So, three-four months there will be no work, there will be no tendering,
03:58 there will be no capex item which will move. So, it is not what the government wants to spend.
04:05 It's also what the economy can absorb in a particular time frame. Right.
04:13 And the other thing, they have understood one thing. It is like a corporate. You underperform, you under promise and over deliver.
04:22 So, they of course, over the last three-four years all of us have got now comfortable. No one is reading in between the line in the budget.
04:31 Because there is no googly which comes. Right. So, they have established that credibility in order to say that, you know,
04:39 whatever government says, we can trust them. Right. So, that is the reason, you know, it would not have taken them to say that,
04:47 okay, we will put a number of 12 lakh crore rupees of capex. But they know that even if they put 12 lakh crore rupees of capex,
04:55 the fiscal deficit in point of 5.1 would have been 5.4. I don't think world would have taken it any otherwise.
05:04 People would have been still be happy. 5.4 is a good number to have. But they did not do it according to me
05:11 because they know it is impossible to spend 12 lakh crore rupees in nine months.
05:16 Interesting point. Okay. Very interesting point. The other aspect could it be just wanting to understand that
05:22 it's also played to a global gallery that here we are a nation which is growing at 7, 7 and a half.
05:29 But we are adhering to fiscal deficit. We are lowering down the fiscal deficit, showing the glide path, lower borrowings,
05:35 significant capex as you said and all of that. So, come and invest in India because you might have missed the bus the last year.
05:42 Yeah, absolutely. And again, you know, when we look at in the context, Neeraj, this 11 lakh, 11 and a half lakh crore looks small.
05:52 But if I extrapolate and just take 10-12% growth every year, maybe in the next seven years,
05:59 government will end up spending 1 lakh, lakh crore rupees and that's a very, very large number, right?
06:07 Cumulative. When you see the effect, it is a very large number and it's a clear signal to and you see one slide in the budget.
06:16 They have shown that the dollar term growth of the economy this year is expected at 10 and a half percent.
06:25 This is the first time they have spoken about the dollar term, not rupee term GDP growth.
06:32 Dollar term GDP growth rate. So, it can really hit that class of foreign investor wherein other economy on a nominal basis
06:41 are struggling to grow 4 or 5%. Here is a country which is confident to grow 10.5% their GDP in dollar terms.
06:50 Right, right. Of course. No, this is an important point because I was just asking you, right, that have they kind of played to the global gallery?
06:56 It is. Obviously, they know that, you know, money has to come from there.
07:00 If this is just one bond index which we have got included into. There are three, four other very important bond index.
07:08 The country has to upgrade the credit rating so that we can attract a lot more money and a more holistic basis.
07:15 Not only FII flows, but FDI flows, bond market flows. And once the liquidity comes, that is when,
07:23 Neeraj, you see yourself, if 40-50 billion dollar comes through the bond market, what will happen to the currency?
07:30 This is a new money which was not there in the market. Right, right. And to that extent, RBI will have to release rupees.
07:36 So, that liquidity will be there in the system. And that liquidity will serve the purpose of bond market,
07:42 it will serve the purpose of equity market, it will serve the purpose of entrepreneurs.
07:46 It is a spiral, right? You put 2 lakh crore rupees because you get dollar and you pump in that kind of liquidity in the market.
07:54 Right. It will do good, lot of good to lot of section of people in India.
08:00 So, mujhe ye toh pata hai Mr. Madhu Killa was bullish all through 2023 and it's on record.
08:06 Aapne bohot baar bola hai. Do you, are you after, not that the budget, you needed the budget to make you more or less bullish,
08:13 but the budget as you said or as somebody said could have had speed breakers, it hasn't.
08:18 Has it made you more bullish or is Mr. Madhu Killa more bullish now?
08:23 Sir, I will tell you honestly, you know, the way I look at markets today, that there are plenty of opportunities
08:30 in the market on a bottom up basis. But it is also the time to be careful because we have made so much money in the last 3 years.
08:41 And people's expectation is so skyrocketing that people are not talking of percentage term.
08:48 If you tell someone like you make 15-20% return, he will say that, you know, which age are you living in.
08:58 So, the expectation of people is very very different and obviously there is clear discomfort in a lot of pockets
09:08 when it comes to valuation. So, it is also the time to just take a step back, you know, make sure that,
09:17 Neeraj, there is only one thing which all 800 crore people want to do in the world. And that is to make money.
09:26 Sure. That's the only place where people are unanimous as humanity, right? So, I would say making money is never easy.
09:35 But this time around it is even more difficult because of the kind of run which we have had, because of the valuation,
09:42 the way stocks have got valued, right? And also, obviously, the margin of safety has got reduced as compared with last 3 years.
09:52 So, this is the time also to be careful. Let me add one thing. This is if I look at it from a 6-12 month perspective.
10:01 But if I look at it from a 5-year perspective or if I look at it from a 10-year perspective, I am extremely bullish.
10:08 And the budget has made me even more bullish. Because there is clearly continuation and underlying.
10:15 You look at the confidence of this government. In a election year there is no populist measure.
10:21 It is good for economy, good for budget. But they are clearly understanding that we don't need to be populist to win the election.
10:30 -That's true. -Right? That is the confidence by which this budget is being presented.
10:36 So, if the government comes in, in 2024, once the government comes in, obviously, there will be policy continuation.
10:44 And I think far far more work will happen in next 5 years than what is happening last 10 years.
10:53 This I am very convinced about. So, I feel for that I am not sounding confused. I feel that, you know, markets have run up.
11:04 There could be some correction. I am not making a case that there will be one correction. There could be one correction.
11:12 If that correction come, that is your only hope to get into the market. Right now the India story is well discovered.
11:20 So, a corrections are only hope that people who are sitting in the side line, they can get in.
11:26 And someone like me also even if I have created 5-10% cash, that is the only hope that if there is a correction in the market,
11:33 we will plough back that money. -Got it. -Right? So, from a medium long term perspective,
11:39 there is more conviction to invest in equity. Be selective. Make sure that you are doing your homework properly.
11:48 Because there is lot of things in the air, lot of tips. Everyone has got a tip. So, you should not get into the market
11:56 just because it is momentum, just because it is going up. If you do your homework, still there are lot of opportunities which are there in the markets.
12:03 Okay. Well, we are dissecting budget and investing with Mr. Madhusudan Kela. We will take a quick break.
12:10 Come back and try and talk about some nuance.
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15:24 Back with this very special budget special episode in conversation with Mr. Madhusudan Kela
15:30 who has told us that you need to be cautiously optimistic. But over a 5-10 year period,
15:38 there is a strong case for being optimistic on risk assets and his conviction is even stronger after the budget.
15:46 Mr. Kela, a couple of small nuances that I thought in the budget which may not have investing implications,
15:52 but I thought they were interesting moves. For example, this corpus of 1 lakh crores being created
15:58 for front loading R&D investments and typically the government taking such a big step would probably propel private investments
16:06 into deep tech etc. Something that India has been there but not quite there. I mean in some sense,
16:12 they have not just gone for the obvious ones which will play to the gallery but also the deep needing ones.
16:20 Anything like that stood out? – Some of them are very smart moves. You know, obviously this is need of the hour.
16:26 With 1.4 billion people there are so many smart innovative R&D oriented brains which are there in India
16:34 which need this kind of a support or a risk capital. Right to an encouragement from the government like
16:42 I sit with Sid B on their governing board on FOF. Right? So, this startup funds have done wonders to a lot of fund managers
16:53 and in turn to lot of enterprises. Similarly, this will encourage a lot. But I think even smarter piece was to do it in the form of bond or debt.
17:05 Right? Because if you did it in the form of grant then you have to put it in the budget. – Sure.
17:13 And it will increase your fiscal deficit in that sense. But because they are doing it in the form of long term debt,
17:21 Right? It will not be part of any fiscal deficit. I don't know what the mechanism will be but I think it's a great move.
17:28 Got it. Yeah. Small nuance but great. The other thing was this mention and I don't know if there are numbers put out.
17:34 Please correct me if I am wrong. But this whole mention about the middle income housing spurt that needs to come.
17:41 Now, we know housing is an up cycle but the way to boost household capex is probably through housing swaps.
17:46 Is this in some fashion and they have said that they will give the details in July. But is this in some fashion elongating the real estate cycle?
17:53 It will come. It will come. And not only real estate but anything which is peripheral. See, the direction is very clear.
18:00 Even for the lowest credit of the society, the way this Pradhan Mantri Awas is getting built, they are very clear
18:09 that they have to uplift a lot of people from the poverty. People who are being uplifted from the poverty,
18:16 they have to go to middle class. The middle class has to go to higher class. I think housing is a very big need.
18:21 It's being a very latent need. And atmosphere is just fantastic, Neeraj. To do all of this, government has so much animation right now.
18:30 Right, you know, because if you see when it was, when they inherited and that time, you know, there was some food subsidy with FCI,
18:38 there was some oil bonds with BPCL, IOC. It is all being cleaned up. And in a clean manner we are talking of 4.5% fiscal deficit.
18:47 And I want to tell you one thing. Government of India has become very rich. People are not realizing that India is a country,
18:59 we have a fabulous balance sheet. We may have a poor P&L but we have a fabulous balance sheet.
19:05 13 lakh crore rupees was the value of all PSU companies put together 3 ½ years back.
19:13 Today it is 51 lakh crores. -Got it. -So, government value has increased by more than 25 lakh crores in last 3 ½ years.
19:23 What emanation does it give them? You divest, you know, if 50 lakh crore is the market cap, you divest even 1 or 2%,
19:33 you can raise 50,000 1 lakh crore rupees. It can just change all the numbers on the fiscal side. -Yeah.
19:40 And none of it is being taken. -Yes. -And if there is a really fabulous majority government,
19:46 what stops them from selling 1 or 2 or 3 companies on a strategic basis and really get this divestment numbers really kicking in
19:56 and take that money and invest into housing, invest into uplifting people. -Yeah. So, why is that not happening?
20:03 Why do you think on the divestment side… -I don't think it was right to take that assumptions today.
20:08 Because again it was interim budget. -No, but even the divestment targets for FY24, we are far away from…
20:15 Maybe I don't know. Maybe it is by design because they have understood that there is far much value in all these public sector companies.
20:23 So, why just sell them for a song? -Got it. Okay. Okay. -Right. Now you see yourself.
20:29 You know, today if you want to sell 10% of Hindustan Aromatics, you can get 20,000 rupees crores. -That's true.
20:35 That's true. You have been very constructive on PSU banks, yes, but PSUs as well. -PSU as a whole.
20:40 You continue to remain constructive. -Absolutely. Absolutely. -Okay. The other aspect is this whole rally in the CAPEX…
20:47 However, I must warn you that railway stocks to my opinion are… I am not comfortable with particular few stocks
20:55 valuation in the railway segment. So, I think either they pause or they decline. I don't know what happens.
21:01 Or they pass some time. But there the valuations are stressed according to me. -Got it. Okay. Point well taken.
21:08 But some of the others, even on the private side for example, the CAPEX fueled stocks,
21:13 wherein this whole story of a five-year long CAPEX, defense, the capital good majors, etc.,
21:20 do you think that that story continues? -That story continues. We like the EPC space there.
21:26 We feel that companies have really transformed, the balance sheets have really become very-very positive for them.
21:34 The order backlog is very good. Ownership is not there. And compared to what the potential over the next 3-4 years is,
21:40 they are still trading at a reasonable valuation. So, our preference is to buy these companies
21:46 versus buying some of the very more expensive companies to play the CAPEX cycle. -Got it.
21:52 Correct me if I am wrong but one of your most decorated bets in the last 12 to 24 months could have been PSU banks.
21:59 One of them. -Yes. -Your most decorated bets. Are you still constructive? -Yes, I am very constructive. -Even now.
22:04 For the reason that you know, because if I look at PSU bank valuation, they are still trading at below 5P if I take a 24-month view.
22:12 Lot of other PSU's are trading at 30-40P. So, there is still a large dichotomy. And also, that you know,
22:20 some of these banks will make 20% plus ROE in ERAJ. Why they should be quoting at one time book or 4FIP multiple.
22:28 And thirdly, when you look at ownership of all of these banks, you look at any mutual fund, any FIF, any FIF portfolio,
22:37 it is still not representing. So, there is still a lot of under-ownership. And I think it is coming. It is coming.
22:45 You know, for instance, Canara Bank has been a five-bagger in last three years compared to any large bank
22:53 which has not given really any return or very minimal return. -That's true. Actually, off budget, maybe one final question.
23:00 But what is ailing the large private sector banks? They have been wealth generators for years. Somehow, they have gone off the boil completely.
23:09 What's happening here and when does it turn, if at all? -I think preliminary it is the FIF flows because FIFs were significantly over-owned
23:19 in these companies. And FIF flows has been negative and that has been negative for the owing to, you know, the overall emerging market.
23:28 There is nothing specific to India. But because overall emerging market, there is outflow, China is not doing well, Russia is not doing well.
23:36 And that is why there is outflow and India is we are part of the emerging market baskets. So, when money gets withdrawn from there,
23:42 money goes out from here also. And FIF have owned significantly all of these private banks also.
23:50 Only because that's where they made money. So, that is one factor. Obviously, you know, the expected profit cagger or a top line cagger
24:01 which some of these large banks delivered for the last 15 years versus what they delivered in last three years is also one factor.
24:09 I think for me the turning point will be significant reversal of FIF money. Whenever we see that, that it is coming,
24:17 I think that will be the real reversal point. -Got it. Some off budget conversation and otherwise budget story.
24:23 But Mr. Madhusudhan Kela this was special talking to you and getting some very good insights including that insight on CapEx for 9 months
24:30 because of the Acharya Saita. Not too much that somebody has spoken about. So, thank you for all of this and thank you for coming to our studios.
24:36 Thank you so much. Thank you so much and congratulations to you and the entire team. The place looks fabulous. Thank you so much.
24:42 Thank you so much and viewers, thanks for tuning in to this very special conversation.
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28:18 Hello and welcome to NDTV Profit. I am Hiral Dadya Souslon. That's the stock to focus on, on the back of numbers,
28:25 the kind of turnaround that we have seen as well as a couple of announcements that have taken center stage for the renewable energy space
28:32 with regards to India becoming for a net zero future. Joining us on the show is Himanshu Modi, the CFO at Souslon.
28:41 Himanshu, firstly congratulations for the spectacular set of numbers because from a profit number, from a two digit we have already jumped to a
28:49 three digit number this time around close to 200 odd crores. If I look at the first nine months in terms of profitability, overall 440 odd crores is what we have seen.
29:02 Is this the run rate that you will maintain with regards to FI24 and how do you see it moving into FI25 taking all the strategic decisions that have been taken so far?
29:15 Well I think given the order book that we have which is about close to 3.2 gigawatts which needs to be executed.