Budget 2024: Expecting incremental shift towards RevEx & continued thrust on capex: Ravi Dharamshi

Ravi Dharamshi, Founder & CIO, ValueQuest Investment Advisors, says this Budget will not be a non event and will lay out the government intent for the next five years. Incrementally, the turnaround might happen on the revenue expenditure (RevEx) side and that might be a signaling that there is an acknowledgment of two things –political compulsions and actual rural distress and a need to revive the same. Dharamshi is looking out for a more incremental shift towards revenue expenditure and continued thrust on the capex.

Is it going to be just another day or is it going to be a big day with a swing and the market reacting to what we will hear in the Budget?
Ravi Dharamshi: For a change, this time around, Budget is not a non-event. It will lay out the intent of the government with the next five years point of view in how they are going to prioritise their spending and that can lead to a lot of change and transition in the way you position your portfolio. So, it is a keenly monitored budget for sure.

What would be the directional impetus of the government which in a sense will convince us that there is going to be continuity and this Budget is going to be that springboard for the economy to leap forward and for markets to maintain the upward trend? What is the construct you would be watching out for?
Ravi Dharamshi: From a broad directional point of view, there is no doubt about it that they will continue with the thrust on the growth. It is just what we are keen on monitoring is, is that thrust going to be provided through capex related themes or is it going to be provided through revenue expenditure related theme?


From that perspective, our base case is that capex continues. Incrementally, there might be not a big jump since this is a follow-up after the interim budget, so the intent was quite laid out, 17% growth in capex. Will there be a further bump up in that? Maybe a small bump up. But incrementally, the turnaround might happen on the revenue expenditure (RevEx) side and that might be a signalling that there is acknowledgement of two things – one is political compulsions and second is that there is actual rural distress and there is a need to revive the same. I am looking out for more incremental shift towards revenue expenditure and continued thrust on the capex.

We have seen the highest pre-budget rally in last seven budgets. Historically, markets have rallied ahead of the Budget, and then tend to adjust those gains. Even though the importance of the Budget over the years has been diluted, there tends to be a swing factor of 4% to 5%. Are we in for a post-budget sell-off or is the momentum here to stay?
Ravi Dharamshi: The volatility is here to stay. Levels are elevated. So, even a minor negative in budget can swing the markets in a big way. I do not rule out 3-4-5% move in the market today and it could be either side. I do not want to hazard a guess. But I do want to say that the efforts of the government will be towards putting slightly more money in the hands of the rural and the middle class and if that is there, then broadly what it will do is broad-base the economic boom that we are witnessing.

Right now, the economic boom is quite narrow and probably at the top of the pyramid. It needs to get more broad-based and if we see some steps towards achieving the same, that would be a positive.

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Energy transition is the number one theme. Why are you betting on energy transition? Are you betting on energy transition from coal to solar or coal to some other sources?
Ravi Dharamshi: Energy transition is a very broad theme and it is the need of the humanity. And this time around even the Economic Survey gave ample space to energy transition as a theme and it talks about how there will be various trade-offs that we will have to make. So, it is not a one particular sector that gets impacted. In fact, it impacts across the board, so many sectors. The way the power is generated, so that is obvious the one, solar, wind, moving away from thermal and crude. And of course, power transmission, power financiers, in general power equipment. And then, of course, the consumption of electricity, which is electrification of everything. So, there are many buckets which get impacted through this theme.

It is just that the larger trend is so strongly in place, we cannot deny it. In fact, all governments are acting towards facilitating and enabling the same. We already have seen so many subsidies and SOPs being given to green manufacturing and industries focused on renewables. But I think there is a need to further do that. There is a second trend that also impacts this, which is we might move away from fossil fuels, but there might be a case that if in the renewables, we might become dependent on another block, like say China, instead of the OPEC. So, there is a need to move the supply chain also away from China and the world recognises that. So, both the things are playing into the manufacturing theme. And that is one of the reasons why we remain bullish from the next five-seven years perspective.

Second is something expected, but there are a lot of ways in which you can perhaps bet on rural recovery. If you think that rural recovery is around the corner, what is the best way to bet on this rural recovery trend? Autos, FMCG, NBFCs, what is your sense?
Ravi Dharamshi: First of all, I do not say that rural recovery is here and now. I am looking for those lead indicators which will tell me that government is worried enough about the pain in the rural economy and they are incrementally going to start focus on it. We have already seen some steps where the PM Awas Yojana has gotten further boost, I think that is the best way to revive the rural cycle.

The biggest multiplier effect comes from the real estate and construction cycle. The current real estate cycle is more focused at the top of the pyramid and if we can move that to the bottom of the pyramid and have rural revival based on a real estate cycle, that would be great and that is the low hanging fruit in my opinion. The larger theme is that we spend a little bit more on welfare. There are some state elections coming up and there are compulsions of coalition politics which means that there might be increase in the revenue expenditure also. That will probably lead to increase in consumption at the bottom of the pyramid and any sector and company really focused on that opportunity should also be a beneficiary.

The third theme is private capex revival. This is a theme which in a sense markets have been betting on. But as evidence is showing, the private sector capex has not picked up. Do you think this is a case where the stocks have run up way ahead of the actual cycle has started?
Ravi Dharamshi: Till FY23, almost 80% of the burden of capex revival was being lifted by central government. In FY24, incrementally state governments started contributing. Private sector as a whole has not yet picked up. It has been almost three years since the private sector has been showing fantastic profitability and even the Chief Economic Advisor has pointed it out in the Economic Survey that the corporate sector had Rs 5 lakh crore profitability in FY19 and we are now almost near Rs 20 lakh crore. That tells us that they have made good money in the three-four years.

The capex incrementally is not necessary for anything else but actually for their own growth prospects. If growth prospects are good and if you want to sustain that, you have to do that thing. The government has done enough to incentivise the private sector capex cycle and we should see the numbers start panning out in the coming time. However, I still expect that in this particular year, certain new sectors will be added to the PLI scheme, and certain more capex related subsidies or tax SOPs might be provided. I do not rule that out because this transition from government-led capex to private sector-led capex must happen and I would be looking out for some incremental news over there as well.