Friday, March 1, 2013

My view on Budget and one stock opportunity to invest


I am taking a break from writing about “finding your passion” and writing about budget. Many of my readers had reached out yesterday asking for my views on budget. And so I am forced to say this:

The Indian populace expects miracle from the budget – it is not as important as it is made out to be – years of bad governance cannot be solved by one budget – and I am a long term investor – my equity calls are for 3-5 years – so when I buy my stock, I am looking at period when there will be 3 to 5 budgets and so I cannot be really banking on the budget to give me ruturns. I buy stocks where budget or no budget, the company will make more profits and over time become more valuable and give me returns. In fact, last week the event that has more long term impact on my investments was not the Indian budget, but the Italian elections.

So yesterday, I did not switch on the TV till 9 pm and as I was starting to see what the news said about budget, I got calls from some of my friends to ask for my view on the budget  - and so it is actually today morning in the newspaper that I read details of the budget.

So what is my view – well it is the best that Chidambaram could do under these circumstances. Imagine, as a house hold, you have an income of about Rs. 1 lac per annum and you have a committed expense of Rs 1.1 lac per annum ( that you cannot reduce) – and then assume that you need additional Rs 50,000 to invest in long term asset building (things like education, health etc) . You know that you should not reduce this asset building and so you take loans of Rs 50,000 and invest in this area of asset building. This is kind of situation that India is in. Chidambaram has to balance the income (Rs 1 lac in the example above and INR 10.5 trillion in the real budget) and expenses (1.1 lac in our example above and INR 11 trllion in the real budget).  The asset building in Indian terms is about INR 5.5 trillion and that is funded by govt taking loans to the tune of INR 6 trillion. So what more can you expect from a profligate household like this? Let us accept that we are a poorly managed country. Years of mismanagement of funds has lead us to this situation and one budget can only do so much. So Chidambaram has given some sense of direction - a bit of belt tightening to cut expenses, a bit of fine tuning on where the money is being spent, a bit of tax fine tuning to get some more revenues etc etc.

Really watching the budget for the whole day and trying to buy shares – is foolishness.

So here is one share that I am buying today –Gruh Finance -please study this company –this company is the HDFC Limited of rural India. It is not very well known to us living in metros as it is focussing on home loans in smaller towns and rural India and has an excellent track record.  I have bought this share in the April 2012 for Rs 131 per share and  it is currently trading at Rs 217 ( a 64% return in one year).
This budget has a lovely provision for the middle class – where in first time home buyers get additional Rs 1 lac exemption on interest payments for housing loans up to Rs 25 lacs. What this means is that if you are taking a home loan of Rs 25 lacs, and you are paying a 11% interest, then 10% of this interest will be tax deductible. This will surely impact positively the home sales in non metros and rural areas and Gruh Finance is well positioned to capitalise on this opportunity.
So I would recommend that you buy this share – I am investing in it at the current levels.