markets: Trade War tensions won’t derail India’s economic outlook: Taher Badshah

“We are of the view that the second half of the year will probably be the part of the year when we will start making returns. So, we go through a dull part of the year where we probably trend downwards as we are doing today,” says Taher Badshah, Invesco Mutual Fund.

Give us a sense of what you are making of this union budget, especially that it is so heavy on the entire consumption theme, and if this is a theme that you are liking right now, if your stance has changed or if the budget has made this sector look more favourable to you now.
Taher Badshah: For us, what we have seen out of the budget is something which is welcome from a portfolio standpoint, because we now have the other side of the economy also, which probably can have certain attractive features and probably where growth can accelerate. I am not necessarily of the view that this will have to come at the cost of the investment economy or the investment portion of the portfolio. And therefore, to that extent, up until now that we were probably confronted with a situation where only one engine or one cylinder was firing, we probably now have the other cylinder firing for us as well from a market standpoint.

And therefore, I would like to think that this just broadens up the opportunities for us from a market standpoint in the portfolio and we can probably look at a portfolio configuration, which is somewhat more healthier and more balanced as we go forward. So, in that sense, therefore, we believe that this is a welcome budget.

So, it is a welcome budget indeed but help us understand that which factor you are giving the most weightage on at this point in time. Is it the budget cheer that will drive the markets from here on or maybe the concerns on the earnings downgrade still persist or the overhang related to the tariff sanctions, maybe with respect to India-US trade. So, which factor do you believe is the most important to watch out for?
Taher Badshah: Now with the budget done and dusted and it has served its purpose in terms of recalibrating the economic objectives. Our view has been basically that at an aggregate level, the first part of 2025 being a slower part from a market standpoint, because we will be confronted with some of these challenges that you mentioned, essentially the changes which are happening from international administration point of view and the global trade forces which are at play right now, I think these were some parts of the anticipated factors of the market which we thought would probably come in the way of the market performing in the first half of 2025 and that is what is panning out right now.We are of the view that the second half of the year will probably be the part of the year when we will start making returns. So, we go through a dull part of the year where we probably trend downwards as we are doing today.
We also go through a certain amount of time absolute correction and then we start picking pace as the earning cycle then starts to once again revive in towards the second half or maybe towards the latter part of 2025.
So, yes, we have been of the view that some of these challenges with regard to downward revision of earnings, global trade forces because of the change in administration of the US and some of our own local factors will probably be against us in the first half and then we eventually start to build from there on.
So, what is panning out in the market today is consistent with that view. Although, I would like to think that the reaction that the market has given over the last few weeks, especially our Indian markets and some of the emerging markets has been somewhat more brutal than we would have anticipated.

We would have probably thought of a more gradual decline in the market in the first half of the year, but here we are. The market has seen a much larger correction in terms of intensity in a shorter period of time. So, here we settle down and then we gradually build up. The bulk of the larger damage which had to happen in the first part of 25 is probably done in my view.

Going ahead, if you have to get sector specific, what is your view on defence stocks as well as PSU stocks along with capex related names because we understand from the budget that the defence allocation has been not in line with what the street was expecting. What is your view on defence and PSUs and especially also on the capex related front?
Taher Badshah: So, I would like to think that we have to look at the numbers in the context of the market. And while at an absolute level we may feel that and perhaps even for all of us, we may think that the 10% growth which has been allocated for public expenditure in this budget compared to let us say which was being allocated for the last two years, obviously there is a deceleration to that extent.

But when we look at it and juxtapose it in the context of the market, which has already punished many of these industrial names as a result of that, what should be a starting point now?

Our starting point now tells us that there is a certain amount of disappointment which has come in and which has probably been priced by the market and what should we look forward to now is basically the budgeted capex being spent during the course of the next 6 to 12 months’ time.

So, even though the budget allocation may only be 10% higher at 11.2 lakh crores, but can we make sure that the 11 odd lakh crores is probably spent during the course of the year?

We had a shortfall in spending in the last year versus the budget estimates by 8 odd percent and 5% in the prior year as well. Can we have a situation where this year we might overshoot our target because that probably also is quite possible.

So, what we have to now measure is what do we see in terms of spending from here on. And on a monthly basis if the numbers budgeted for even FY25 would be achieved and then for FY26, I think we are looking at roughly approximately about 95,000 odd crores on public capex being spent over the next 15 odd months, three months of this year and the 12 of the subsequent year versus about 75,000 odd crores that we spent in the last 12 months.

So, if you look at it from that relative standpoint, then we are likely to see an acceleration. And if we see that acceleration beyond a particular point, market will move away from the fact that it is just a 10% growth allocation for the year as a whole to try and see it from the point of view of the acceleration from 75 to 95, which is quite substantial and that should have its own implications from a second order and third order multiplier effects in the economy as well.

So, I would like to now at this level with some of these industrial names having been quite badly hit, I would start looking at them a lot more constructively.

Of course, we cannot call bottoms accurately as we know, but the thing is that there is a time, like I said, bulk of the damage which had to be done is probably done. We may see some more of it, but the larger part of that is done.

So, we start taking a more constructive view out there. We try to build some consumption opportunities as well in order to bring in that balance and we also then try and keep an eye on some of the export-oriented opportunities too because with the changing order of the world with regard to trade dynamics, there could be some opportunities coming from there as well.

So, we continue to play some part of what we were playing last year and build a few things around it as we see opportunities come up and as things develop during the course of calendar year 25.

I just wanted your take that, is there anything that you are reading more into the kind of sanctions and the tariff imposition right now because yes, indeed, Mr Trump has been changing his statements or rather making changes in terms of the policies, but the tariff imposition on China still persists. They are reaching the deadline, but China is not taking a backseat, has gone ahead and also announced that they will be imposing the tariff on select commodities. So, help us understand that, is there any opportunity that lies for India right now because definitely when these tariffs get imposed, the consumers are at the weaker hand, there is no benefit for any other country. But given this scenario, any sector that you believe that where India can actually benefit from?
Taher Badshah: So, unfortunately, because of the moving parts and with the fact that this is not settled till the time it is settled and the policies are not fully crystallised till they are crystallised, it is very difficult to kind of take a view on that.

You can see that there has been a change of stance over a 24-hour period. So, clearly, it is very difficult to predict. I would rather in this kind of a situation, probably wait it out to see as to what exactly transpires and where does it settle.

There will be some policies which will be finalised and will be implemented. It is better to take a call post that, instead of pre-empting some of these.

I think the push and pulls of the US economy are of a reasonably complex order and there is no simple yes or no as far as tariffs, etc, are concerned.

Even for China, there is to some extent, like while you do say that 10% is being thought about and the first instance has actually turned out to be lower than what was probably the rhetoric a few months ago during the election.
So, to that extent, there too there has been a climb down. So, we need to keep some of the realities in mind and not necessarily jump to conclusions.

Especially from a portfolio standpoint, we are not trying to pre-empt anything here. We continue with liking some of those themes that were more domestic specific, which were important, and there were certain areas where we felt that irrespective of whatever happens to tariffs, India should be kind of okay and perhaps in fact, have an opportunity to even increase market share in the global scheme of things, there we have persisted and we have maintained a conviction.

Some of the new emerging areas which come about because of, let us say, Mexico plus one or Canada plus one kind of a situation is something which we would not want to necessarily jump into before seeing the reality on the ground. So, there probably we do not have a choice, but to keep holding our horses.

On that note, do you believe that this trade war that is only expected to escalate, it would turn India once again attractive for FIIs because the kind of outflows that we have seen, they have been unprecedented so far. Do you believe that this trade war could turn out to be beneficial for India from an FII standpoint?
Taher Badshah: At the overall level, there has been this expectation in any case that India would not necessarily be in the thick of the crossfire. We would probably have some impact and more so coming out of the fact that global growth may slow if some of these trade escalations, trade wars were to escalate.

So, I think that scenario still remains, but I do not think in any case there was that expectation that India would be severely punished in this regard. So, I think that is not necessarily the case, but there could be along the way, as I said, some opportunities which may come about for India and but it is better not to pre-empt if at all and try and just watch the game from the sidelines at this stage.

I think for the US also, it is not easy decision-making while there could be a little bit of the political rhetoric and we also know what are the other considerations.

likely to relent on some of the tariffs, they are trying to essentially bargain and get something else for themselves out of these countries, which is also maybe intangible, but it is important to them. So, I do not think we should mix up economy as economic considerations and other considerations at the same time.

So, to my mind, FIIs will return if we see generally the situation. It will be a function of larger cyclicalities where India starts getting back into a scenario of upward revision to earnings, dollar settles down as a currency especially after the trade war related stuff, emerging market currency stabilise and move upwards and I think if that scenario were to probably develop, then that is probably going to be the larger reason for FII flows to once again start looking more positive compared to what it has been in the course of the last six months.