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Modi 2.0 - The Rise of India

Formalization of economy, financialisation of savings, digitization, investments in railways, adoption of clean energy are the megatrends here to stay. Economic reforms & policies have created these trends with corporate tax cuts providing further impetus to this trend. This portfolio comprises of stocks to benefit from the economic reforms & policies of National Democratic Alliance (NDA) government. Further, these stocks will be the biggest beneficiaries of India achieving the five trillion dollar mark by 2024.

What makes us Positive on India Achieving the Five Trillion Dollar Mark by 2026

Corporate Tax Rate Cut to Revive Private Capital Expenditure Cycle and Attract Foreign Money

Termed as the biggest and boldest reform, government cut corporate tax rates to 22% from the existing 30%. To add, new manufacturing units set up after 1 October 2019 will attract an even lower corporate tax rate of a mere 15%. Tax cuts essentially means more money in the hands of India Inc. This incremental savings could either be distributed as dividends or re-invested in business or used for inorganic acquisition.

Further, tax cuts make India one of the most attractive destinations globally to outsource their manufacturing activities. With China and USA in a midst of tariff war, global multi-national companies (MNCs) want to curtail their reliance on China to source their manufacturing requirements. With the tax rate cuts and cheap manufacturing costs on account of lower labour costs, India will be the preferred destination.

This will drive the next leg of the much needed private capital expenditure cycle which will help India reach the five trillion dollar mark by 2026. However, this theme will not play out in the near term as India slowly recovers from a cyclical economic slowdown. However, in the long run we are confident for the theme to play out with a reactive government at the helm.

The sectors which benefit the most from this theme are Banks, Cement, Construction, Logistics and Transportation.

Manufacturing Theme- Gaining Prominence by Production Linked Incentive (PLI)

As the COVID-19 pandemic hit the world economy in 2020, the importance of being ‘Atmanirbhar’ came into focus. The Prime Minister pointed out the only way forward for India, was through local industries. To create jobs and get rid of India’s unemployment plague it was imperative that the domestic manufacturing sector be boosted. Soon, Modi government introduced Production Linked Incentive (PLI) scheme in 2020.

The Hon’ble Finance Minister, in her speech on Union Budget 2022-23, said the PLI scheme has received an excellent response. It has the potential to create 60 lakh new jobs and an additional production of Rs 30 lakh crore in the next five years.

The sector which benefit the most from this theme are capital goods, banks, cement & metal sector.

Strategic Divestment to Help Contain Fiscal Deficit and Spur Government Expenditure

The present government clearly understands this term- ‘Government has no Business Being in Business’. And recently, it divested its stake from the airline behemoth Air India. Talks are also in advanced stage to sell stakes from BPCL & LIC.

Stake sale will lead to more money in the hands of government. This in-turn could be used to spur government expenditure which can aid in achieving the five trillion dollar mark.

The immediate beneficiaries would be public sector undertakings and banks being the front runners to fund these acquisitions.

Modi’s Drive for Clean Energy to Drive Investments in City Gas Distribution and Electric Vehicle Space

As our oil minister Mr Pradhan was quoted saying, “India will see an investment of about Rs 1.2 lakh crore in the roll out of city gas network in almost 300 districts by 2030 as a massive expansion is planned for CNG dispensing stations and pipelines supplying cooking gas to household kitchens. Five years ago, city gas distribution (CGD) network spanned 34 GAs and now it has expanded to 228 GAs covering 406 districts.” Hence, importance of CNG and PNG is increasing day by day and it will remain so as it is Mr Modi’s pet project.

Further, government is also laying emphasis on electric vehicles. India aims to switch 30% of private cars and 80% of two and three-wheelers to EV by the year 2030. For this, both Central and state governments are offering various incentives to buyers and manufacturers.

The immediate sectors to benefit from the clean energy drive are city gas distribution companies, operators of LNG terminals and auto’s & auto ancillaries.

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