ETMarkets PMS Talk | Budget 2025 Wishlist: Reduce STT or LTCG taxes to boost retail investor participation

“The 2025 budget presents an opportunity to create a more balanced and growth-oriented tax framework for equity markets,” says Vijay Bharadia, Managing Partner & CIO at Wallfort PMS.

In an interview with ETMarkets, Bharadia said: “Dual taxation through STT and capital gains taxes may deter retail participation and shift investments elsewhere,” Edited excerpts:

Thanks for taking the time out. Please review the fund's performance in November and for the year 2024. Were there any milestones achieved this year?
The months of October and November posed significant challenges for Indian stock markets and our fund due to increased volatility and selling pressures. Despite these hurdles, 2024 emerged as a positive year for the market overall.

A notable achievement for Wallfort PMS was the exceptional performance of our diversified fund, which outperformed the S&P BSE 500 TRI.

Over the past 12 months, the fund delivered a remarkable return of 65.84%, compared to the benchmark’s 27.01%. Another significant milestone was surpassing ₹400

It is a small & midcap heavy fund and we have seen some volatility in the broader market space in H22024 – how are placed for 2025?
Our primary focus has been on mid-cap and small-cap stocks, which are known for their growth potential but also come with increased volatility.

In the second half of 2024, particularly during October and November, these segments experienced considerable selling pressure.

However, our consistent investment in fundamentally strong companies has been instrumental in navigating these challenges. As we enter 2025, we remain optimistic about
our strategies and prepared for market fluctuations.

Our clients, who are well-informed about the risks and opportunities associated with mid- and small-cap investments, are equally positioned for the road ahead.

The year 2024 is ending – what is your take on markets for 2025 and big triggers you are watching out for?
Our stock selection process combines a disciplined and comprehensive approach. We adopt a top-down strategy, starting with an in-depth analysis of various sectors.

This allows us to identify three to five sectors that demonstrate significant growth potential, often driven by favorable government policies or economic trends.

Within these sectors, we select promising companies using stringent criteria and benchmarks. Additionally, we prioritize meeting with company promoters to gain a deeper understanding of their business outlook, ensuring confidence in their leadership before making investment decisions.

How do you pick stocks to invest in the fund?
Risk management is at the core of our investment philosophy. We address potential risks by conducting detailed research into a company’s business operations and financial health, focusing on identifying fundamentally strong companies available at reasonable valuations.

Our diversified portfolio minimizes sector-specific risks, and we prioritize investing in high-quality stocks with a higher margin of safety.

This strategy helps reduce portfolio volatility during market downturns and allows us to capitalize on opportunities during price dips by increasing our positions

How do you manage the risk?
Risk management is at the core of our investment philosophy. We address potential risks by conducting detailed research into a company’s business operations and financial health, focusing on identifying fundamentally strong companies available at reasonable valuations.

Our diversified portfolio minimizes sector-specific risks, and we prioritize investing in high-quality stocks with a higher margin of safety. This strategy helps reduce portfolio volatility during market downturns and allows us to capitalize on opportunities during price dips by increasing our positions.

Which sectors are looking attractive for 2025?
Data Centers: Rising internet penetration in India, with 751.5 million users, is boosting demand for infrastructure in this sector.

- Renewable Energy: India’s net-zero goals and declining costs of solar and wind energy highlight the long-term potential of this sector.

- Healthcare: Rising awareness, a growing middle class, and medical tourism are driving sector growth, supported by increased government expenditure.

Any key learnings from 2024 that you would like to share?
In 2024, we learned the importance of aligning client expectations with long-term investment horizons of at least three years. Frequent withdrawals, caused by the absence of an exit load, disrupted strategies. From January 2025, introducing an exit load will encourage clients to stay invested, improving portfolio performance and outcomes.

Growth seems to be slowing down – will India Inc. be able to deliver on the earnings front in 2025 as valuations look stretched in most stocks? What are your views?
Concerns about high market valuations and their potential impact on earnings in 2025 are valid. While some sectors appear overvalued, opportunities exist in areas that have recently underperformed. We aim to identify stocks poised for growth.

Sectors such as manufacturing, healthcare, and renewable energy are likely to lead in 2025, supported by favorable policies and increasing foreign direct investment.

Additionally, when suitable opportunities are limited, holding cash allows us to preserve capital and stay agile, ready to seize opportunities as they arise.

What are your expectations from Budget 2025?
The 2025 budget presents an opportunity to create a more balanced and growth-oriented tax framework for equity markets.

Recent policy changes, including increased Securities Transaction Tax (STT) rates and higher Long-Term and Short-Term Capital Gains (LTCG and STCG) taxes, have placed additional burdens on investors.

Dual taxation through STT and capital gains taxes may deter retail participation and shift investments elsewhere.

To strengthen India’s capital markets, I advocate reducing either STT or LTCG tax rates. This would enhance liquidity, attract long-term investments, and contribute to the broader goal of economic growth

Your advise to investors in 2025?
India’s high market valuations could impact earnings in 2025. However, sectors like healthcare, renewable energy, and manufacturing, supported by policy incentives, remain attractive.

We anticipate a year of stock-specific opportunities rather than broad market rallies. A disciplined approach to research and investment will be essential for navigating this environment effectively.

As we move into 2025, I encourage investors to view equities as a vital asset class, comparable to gold and real estate.

Equities offer unique advantages, including flexibility, liquidity, and significant growth potential. However, navigating the complexities of the equity markets requires expertise.

Much like consulting a specialist doctor, working with experienced equity fund managers ensures alignment with investment goals and helps mitigate risks. Lastly, diversification across asset classes, including equities, remains essential to building a resilient and rewarding portfolio.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)