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This time the markets expectations have been very low going into the Budget. There has hardly been any action or any meaningful buildup before the Budget. May be memories of last time lingered, where the Budget did pretty much nothing. The market sort of sulked after that for a bit. But this time there has been no run-up. The Nifty is stuck in the middle of a trading range. The material point is whether the Budget can do something that nudges it out of their trading range, hopefully on the way up or on the way down.
Trader and investor Rakesh Jhunjhunwala does not expect Finance Minister P Chidambaram to do anything that is going to damage the markets really. He feels some of the excesses in the markets have been cleansed.
Samir Arora, Fund Manager, Helios Capital, said said the Budget is going to be immaterial beyond one-two days, unless there is something done which directly impacts the stock market.
Ramesh Damani, Member, BSE, said March will be a challenge for the markets. However, in April, the markets will start looking better.
N Jayakumar, CEO, Prime Securities, feels the Budget will be pretty much a non-event. “Other than a surcharge, I really cannot see anything coming out which is materially different,”
H P Ranina, Advocate, Supreme Court of India, said that the FM is not going to do anything substantial.
Excerpts from CNBC-TV18’s exclusive interview with Rakesh Jhunjhunwala, Samir Arora, Ramesh Damani, N Jayakumar, and H P Ranina:
Q: How do you find the markets going into the Budget? Do you think it is at a juncture where the Budget can be material and tip it out of a range?
Jhunjhunwala: I am personally quite confused. We have come out of a place where some of the excesses in the markets have been cleansed. There is extreme fund raising and promoter ambitions have been contained. But we are still in the shadow of international factors. A large part of the leveraged positions have been sold out. There are very few leveraged positions in the market. Despite all the pessimism about the international factors, markets internationally seem to be gaining. Europe is up in the last 25 days, America is up, Brazil is on the verge of a new high. So, I don’t know. In the last 4-5 days, the markets have been extremely sleepy. But there are expectations of a very populist Budget. Knowing Chidambaram, I don’t think he is going to do anything that is going to damage the markets really. I would say it is a difficult call to make.
Q: This time there has not been too much by way of expectations. Do you think it can do anything or it will just be a non-event?
Jayakumar: Forget expectations, for most of us the fact is that there is a Budget tomorrow is big news. Coming back to populism, I think in the age of coalition governments literally every Budget that you present could be your last one. By definition, therefore it has to be populist because you never know when you are going to be elected again, if you will. If you were to take that, there is a bit of populism in every Budget, there is no question of that.
I do not think there is going to be anything dramatic. Budgets by and large for the last four-five years have been pretty much a non-event, as long as there is nothing to derail it one-way or the other. The problem is when Finance Ministers believe that they can actually dramatically alter the course of history. We have gone way past those kind of either statements or expectations of the Finance Minister.
We are going to have pretty much a non-event. There will be tinkering around here or there. If the tax payer, who has been disciplined be it corporate or individual, has given more to the government than what the government has expected, as the collections indicate then pretty much, I assume that something will be given back in the form of a surcharge or otherwise. Other than that, I really cannot see anything coming out which is materially different. Yes, there will be complex calculations because Chidambaram now is famous for those read between the line kinds of Budgets. There will be a lot of that which other people maybe able to better interpret. But I think there is nothing really that is going to be of interest.
Q: What do you think? Is there any material at all which might be important for the markets direction?
Arora: Last year’s Budget was quite bad in terms of the market impact. The market fell 4% on the day of the Budget. After that, it didn’t really matter the next day. So, the point is that the Budget is going to be immaterial beyond one-two days, unless there is something done which directly impacts the stock market like removing some Mauritius angle or introducing capital gains on stocks outside the 500,etc. Populism on its own, unless it’s turned beyond limits, will not really matter beyond half an hour.
Q: How are you feeling going into the Budget tomorrow?
Damani: Its both good and bad news. If one looks back, Brazil is at a new high. Pakistan made a new high despite the violence in the country and Indonesia is on the verge of a new high.
The trouble with India is that there has been a lot of excesses in the IPO market and into a lot of sectoral themes in India. Those excesses are not still rung out and global liquidity is now approaching to be a challenge. So, it seems that the month of March will pose a challenge for the market. Typically, it’s a tight month for the market. Advance taxes have to be paid. In April, the market will start looking better. But looking at least one month ahead, it looks like it’s a very tough market.
Q: Should one expect anything by way of direct capital market taxes, which the FM may tinker with, which might make the market a bit moody?
Ranina: No, he will start his Budget speech tomorrow by saying that this is a Budget for consolidation. So, he is not going to do anything substantial. But my worry is that the members of the CBDT may prevail upon him, to make some changes in the capital gain tax structure. They might say that those companies which are not listed on the stock market should not have the benefit of the long-term capital gains tax exemption or a 10% concession rate for short-term capital gains.
This seems to be the indication that he may confine these advantages or exemptions only for listed stocks. So that could, in a sense, rattle the market to some extent.
Q: You expect to hear anything along those lines, Capital gains, STT, any direct capital markets tax which might sour the mood tomorrow?
Jhunjhunwala: To my mind, we have a tax collection this year projected to be what our tax collections were 3 years ago. So having this kind of a growth in tax collection,no finance minister’s right mind would like to make changes which are not going to really make much difference. My judgment is that he is not going to tinker anything, I think he will give some concession in direct taxes to individual. But it’s my personal opinion that if we reduce corporate rate of tax collection, it will not work so much. But if you reduce the individual rate of taxation, the collections will work dramatically. This may not be his last budget, and public memory is very short, so he could come in for a voting account in January. So all the goodies and freebies he would like to give to farmers and everybody, he might like to give it in January and I think even if he wants to give these freebies, his revenue collections have been so high, that I think there is space to do it and if we go by the track record of all these 6-7 budgets he has presented, I don’t think he has done something silly. He was the guy who removed the dividend tax, so I for one feel that this apprehension that he is going to give a Budget which will be populist and do things, So I for one feel that it’s not going to be a negative Budget, how positive it will be and how much it can revive the market is difficult to say.
Q: Two months back, there were expectations that because of the robust tax collections, there will be cuts but as we approach the event, I think those expectations have got considerably diluted. You still think that he will do something like may be take the surcharge away and cut individual taxes etc?
Damani: The two things that he might do, because at the end of the day every Finance Minister wants his legacy and he knows that the markets and the country looks at the Sensex to decide how the Budget is. So he won't do anything dramatic to upset the market, so he shaves off the surcharge. It’s a painless thing to do. It is not really needed at this point and I think what he will do is actually raise the tax slab - the minimum exemption that you get which should be great because it would slurp a demand consumption in India, so I am expecting those kind of two things to be done - the shaving of the surcharge and raising of the minimum tax limit.
Q: What's your take on the backdrop? How do you find the markets now as the event may come and go without too much of an impact as you said but broadly how do you see the markets position now?
Arora: Just before that what Ranina is saying about putting taxes on unlisted companies, I don’t think the stock market investors will care about unlisted companies capital gains if at all that is done. Talking about the market, look at the original research that is done on your channel that somebody relates the abysmality of India to the stock market and says because India is in abysmal country therefore to fall 20%.
If that kind of deep research is done by the markets in general and investors in general, you can see that the bearishness and pessimism is at all-time high and I think the whole country and its citizen should be happy to note that this month, India was 3% less abysmal and for the last one-month, it was about 8% less abysmal than it was on that day.
The point is that people have found new reasons to be bearish on India, so lets look at the original source. The US is in recession and the US is having problems and the US financial companies are having problems because they have to write down subprime loans and credit card loans and whatever mortgage loans but the thing is that in US, if you look at the financials in US, Bank of America, JP Morgan and few other stocks in there in the financial sector were actually up for the year.
If you look at Citibank, which is sort of a representative of the biggest problems that are happening in the world or in US, it is down less than India’s down. If you look at the other stocks in US like retailing, housing, Wal-Mart, home depot, Maycee’s, they are all actually up 5-10% this year i.e. from December 31 which is two months and whatever Indian analyst and Indian strategist think about the next corporate results and that the financials will have write downs, somehow the US market itself is missing all that. So I think India’s sort of taken upon itself that it should worry about everything in the world and you have this book for children called ‘Miss Worry’, I think that is what should be applied to India right now.
Q: You agree with that point of view?
Jayakumar: We have had several people, these I consider as the oldest bastions of the bull market, who one month back came and talked about a 25,000 market. India is not even a developed market, it is a developing market and country. What has happened is somewhere along the line. The fact that there are no highways or bridges was known six months ago or three years ago, it is not necessarily known only one month ago. The issue here is that somewhere along the line we have taken it upon ourselves to worry more about these issues. It is a joke in our office that at 4 pm everyday they click on to a Bloomberg’s Eco-US page to figure out what economic indicators in the US are going to be release that day. It is unbelievable.
Why do we look at Eco-Venezuela, Eco-Ecuador etc? Then, we should worry about other things as well. So, the bottomline really is that if the epicenter of the problem is the US and that is down 4% for the year -- the backyard of the US is Brazil and Mexico both are between 2.5% and 3.5% for the year and in dollar terms are up between 7% and 10% for the year -- then you go to Europe which is the sort of at the next level of being affected and that is down between 8% and 12%, and then you look at India which was the best performing market a month ago.
It is the disenchantment of things that have happened a month ago that have rubbed off to such an extent that from one month ago being the best performing market in the world, we are today sitting and being the worst performing market in the world other than China, which essentially means that excesses have got cleansed on the other side.
So, perhaps the excesses have got washed away. It has come on the back of a fair amount of excesses in the IPO front. While attempts to rectify that have happened, the real issue here is that when it is good, it is very good and when it is bad, it is horrid.
People are saying that everything about India is bad. People who have been long-term proponents are finding reasons to be more bearish than you really need to be. Maybe the excess is happening. It is not a cheap market, but it was never a cheap market in the entire bull-run. We were always ahead of the curve and every single bulge bracket firm today comes out and gives you reasons why they must de-rate India.
So, it was a synchronized buy on the way up and it was synchronized sell on the way down. There are four contrarion indicators. The Merrill Lynch Fund Manger worldwide survey, completed two weeks ago, indicates that people are overweight on cash higher than they were in 2003.
It indicates there is the greatest level of skepticism higher than 9/11. In India, promoter action, in terms of creeping acquisitions and buybacks have increased. The outstanding positions are lower than what they were in May 2006, when there were a higher number of stocks in the F&O and the index was half the level of today.
Apart from all this, the IPO market is virtually shut except for the real worthy. People have been butchered out of the market. The bottom may not be a v-shaped recovery, like in the past. It may be a gradual base formation which is what we are going through.
Q: Do you agree with the optimism of Samir and Jayakumar that there is too much pessimism from which a rally could have its genesis?
Rakesh Jhunjhunwala: We could have a rally, which I wouldn’t rule out. But I don’t think we can be as complacent as we were in the earlier years and that we are going to see new highs with so much ease. I certainly don’t agree with Jayakumar, what about the promoter action that was going on in the market two months ago? Who is going to pay for that?
So, I don’t think the markets are going to cleanse themselves and go into new highs as easily as they have done in earlier years. I for one believe that the long-term India bull story is very much alive. But there is going to be a pause because you cannot run a race from 1 km to 100 km without taking a pause and consolidating. As a long-term investor, I am very much satisfied even if the market doesn’t go for a year. So, be it. I think this will be a healthier market.
I don’t buy all this that just because India is going to do economically well, and because Brazil must go up, India must go up. Brazil is a commodity related market. Commodities are going through the roof worldwide. So, I am myself confused, I don’t know what is going to happen.
I don’t know if to break 4900-5,000 is going to be difficult, to go above any new high is going to be difficult. I think we are going to go in for a consolidation phase. I am not as bullish as sure of a rise and that markets are so pessimistic as Jayakumar is. Certainly there is some pessimism in the market but there has been greater pessimism at times.
Q: Do you think a retest of 4500 or the January lows is possible?
Rakesh Jhunjhunwala: In markets, anything is possible. If China is a guide it is certainly possible, because China has broken into the December and January lows. But I don’t think that is going to happen easily.
Undoubtedly there is not much leverage purchases in the system. I don’t think there is much commitment in the market. People are pessimistic to some extent. But the market is showing no strength whatsoever on the screen, maybe Mr. Chidambaram can change sentiment, I don’t rule it out. So, I think I would like to live by the day rather than to be too sure of where markets are going.
Samir Arora: Rakesh Jhunjhunwala has had a live example of what Jayakumar was talking. Rakesh says we should not look at Brazil because it is up, but India might go down, because China might do something. That is the whole idea. We are benchmarking against anything that is going down.
Rakesh Jhunjhunwala: For Brazil, there is also a China. So, we cannot say, if China is going to a new high, we will go to a new high.
Samir Arora: Let’s look at what are the issues that are facing our markets right now. First of all to say that it won’t be like last year is not a great thing to say because obviously last year the market was 70%. So, to say it is not up like the year before it has no value. The value is, will you make more than the 8% or 7% that you get in your bank or in your mutual funds for fixed income or whatever. That is the whole idea of choosing between equity and debt. It is not like, will you make as much money as last year? No, you will. Even I agree.
But let’s look at all the problems that we are facing today and saying that they are problems of our market. Firstly, foreign investors are not buying.
Secondly, retail investors are not buying. Thirdly, IPOs are not going through.
In December, foreign investors were buying, retail investors were buying, IPOs were getting oversubscribed 100 times. So, where did that lead you one month later. If the simultaneous presence of all these factors in December could not give you returns one month out, why has the absence of these factors taken such a big deal? Do you think the world will wait to see if some high networth guy in India has the confidence or not? The bottomline is in the month of February, the market is up more than 3%, which I think in any definition is a good return for this month. So, why are we thinking beyond January that India is not going anywhere? 3% is not a bad return at a time when we all think that it is not doing anything. The market does not have to go 40% to call it a bull run. If it does better than its alternatives for the retail investors in India, it is a good enough reason to be in equity and then it takes on from there.
Q: What is more likely as an outcome from here? Will the index climb the wall of pessimism to 20,000 plus or go back and re-test 15,000?
Ramesh: It will test the January lows. It was an important low market and it will test that. Markets are looking ahead and not backwards. If you see the raw inflation number, gold is at USD 960/oz signaling strong inflation ahead.
Two days back, wheat futures rose 22%. That sent shockwaves to the entire world, because food is a very important component of an inflation index.
Metals are all rising. Generally, in periods of inflation, markets tend to do very badly because corporate profits and margins are all impacted. So, one theme that will emerge out of 2008 is the policy regulation with inflation. If the Fed is going to reduce interest rates, inflation will stock up in America again. So, that’s a real problem in equity markets ahead.
In the F&O market, you need the retail guys to bring froth to the market by a few hundred shares. Because of what has happened periodically in our markets, every 12 months or 18 months, he has been desperately wounded. Inflation and domestic investors subdued will lead to perhaps a subdued market.
Q: It has been mentioned by some of our experts that we could actually see the corporate tax surcharge going and that will be a feel-good thing tomorrow. Do you think it’s likely?
Ranina: Well, this is what the Finance Minister should do in view of the fact that corporate tax revenues have gone up. But I am a little worried on one score-the Indian corporate sector. I don’t think its going to perform as well in 2008-09, as it did in 2007-08. So, you must factor in the fact that there are going to be bad corporate results in 2008-09. If the monsoon is not so good as it was last year, its going to be worse. So, this will impact the capital market. The Finance Minister is also worried that the corporate revenues, which have shown phenomenal rise in 2007-08, will go down. He is now worried about other issues like subsidies not being accounted for the Budget as the Comptroller and Auditor General has pointed out. All these are worrying factors for him.
Q: This year, could we actually see an earnings deceleration and downgrades happening, which might vitiate the general mood that we have seen in the last year or two in terms of corporate earnings momentum, which has been the bedrock of stock prices?
Arora: Last year, the earnings were good but the market went up 70%. The year before, earnings were good but the market went up 40%. Today, we are not talking about 40% expected return from this market. The question on a relative basis is (a) within India, whether equity versus fixed income works better (b) in a global sense whether
The thing is whether we believe that the world will give up on
Obviously,
You have to reduce the odds. You have to play the odds that the market is down so much and earnings growth is so much. So, what are alternative choices? We are talking about gold going up and the number one beneficiary in the world for gold prices is India. In India, it is more democratically held. Indian gains in gold would be more then USD 150 billion in the last two years.
India is one of the only country in the world where 70% of people rely on agriculture. It can't be all that bad if 70% of the people gain at the expense of the 30% with a living in the urban area only because of inflation or some number will look bad. On a relative basis, India has much better opportunities and better strength than many of our peers around the world.
Q: Where do you stand on this whole commodity inflation thing? Does it worry you this year?
Jayakumar: I think part of the reason for this entire thing has been supply side dislocations. I think it is fair to say that none of us expected to see the impact of global warming in our lifetime, today we are seeing that in terms of everything from change of weather to having a sore throat in Mumbai and experiencing 12 degrees in early February to snowstorms in China etc but that apart, I think there are serious supply side dislocations, whether it is in South Africa for power or in China for movement of coal or food grains etc, I think the reality is, a lot of this has been now accentuated by hedge funds and this is now basically seen by empirical.
If you see the CRB index which is the commodity index and see the kind of things that are making new highs, in the same breath that we talk recession, we also talk about new highs on commodities across the broad whether soft or hard commodities. Essentially, a number of hedge funds have take preemptive positions in and moved money from across the world stock markets which is why there is such a huge crunch despite liquidity slashing around in the system. Money has moved out of the equity markets and I believe has gone into commodity and commodity derivatives.
So a number of things that we see in terms of wheat, rice, gold, oil, copper etc hitting new highs, I think it is more a function of heightened hedge fund activity and supply side dislocations to an extent but the commodities have probably least in a sense “tampered with” and most liquid in that sense is oil but even that is defining very talk of recession. Every talk of a correction in oil is met with a renewed sort of bounce if you will, so my thing on the commodity side is yes, but one must also link that with the dollar. The dollar index which is a basket of several currencies created in 1978 or 1980 again broke its lows and is now at about 74.2. Compared to even at the beginning of this decade it was at 120.
There has been a 46% decline in the dollar across the board, across all assets, across all currencies in just a matter of eight years of this decade. So I think a lot of the readjustment of commodity prices in the context of the dollar also needs to be taken into cognizance, so I think there is the combination of I would say currency movements and hedge fund activity, that’s what the way I would look at it.
Q: Do you worry that this year we could actually see an earnings deceleration and downgrades happening? Would that vitiate the general mood seen in the last year or two, in terms of corporate earnings momentum, which has been the bedrock of stock prices?
Arora: Last year, the earnings were good. But the market went up 70%. In the nd the year before the earnings were good but the market went up 40%; today we are not talking about 40% expected return from this market. The question is on a relative basis (a) within in
So the thing is whether we believe or you believe that the world will give up on
Obviously,
Q: How do you see the Finance Minister responding to this kind of run-away price movements in many commodities? Do you think there is a fair chance that he may look at lowering excise and customs across the board or across many classes to temper inflation a bit?
Jhunjhunwala: He might reduce the import duties but they are not more than 5%. I am not saying that we are long-term bearish. We are very much long-term bullish on India.
We are only trying to figure out what is going to happen tomorrow in the next 3-9 months. I don’t agree that if I feel that the market is going to consolidate rather than go into new highs or have runaway highs in the next 9 months, I am bearish or something.
Having an attitude that markets are going to consolidate rather than runaway is not a bearish attitude. We have to be realistic
Q: What is your assessment this year?
Jhunjhunwala: This is a year of consolidation.
Q: How do you define that?
Damani: In the last five years, we never had a correction that lasted timewise. We had deep correction but the market bounced back in the next 2-3 months. I think the markets are going to test us timewise. It will make a range of 4,800-5,800 or 5,200-5,800 or maybe 5,000-6, 0000.
To have the next rise, we have to consolidate. Then only, we can set ourselves for the next big rise. My personal feeling is that there is a good chance that we could rally tomorrow.
Q: What’s your sense because generally we don’t see these kinds of orderly markets when people don’t like the markets? We have excesses on the way down as we might experience in the last month or two. How high are the odds in your eyes that we have bearish conditions not just an orderly consolidation over the next six months or so?
Damani: If you look back in history, in 1992, the index was 4500. It didn’t cross that level decidedly until 2003, so almost an 11-year old period of consolidation in the index. Since that time it has either gone straight up or straight down, almost v-shaped up and v-shaped down. So, we could have a period of consolidation. Within the multi-year bull market, there could be periods of consolidation for 1-2 years. You have seen them in all asset classes – gold, Japan equities or American equities in the 90s, when the market consolidated before the large point up. I would like to think that the market would consolidate and would test again. The kind of wealth that this market has generated since the last four years is phenomenal, so that kind of wealth needs to be tested. It is not easy to walk away with X million dollars from the market without being tested. Conviction, money comes to the believers, to the people who are convinced about the market. I think it has been to easy a ride for last the 3-4 years. I would be very surprised if the market went back and made new highs soon.
Q: Soon as in?
Jhunjhunwala: 2008.
Q: What is the central risk according to you, to your hypothesis that we will strike out modest gains in 2008, what to your mind could lead to a situation where you get negative returns from equity?
Arora: Ramesh Damani said that in January, people lost so much money that retail investors and high networth investors will not come back and now he says that we have made so much wealth in the last four years so the point is you cannot have it both ways, either investors have wiped out or they have just lost their little bit.
The point is the risk to India for this year is of course firstly, if tomorrow something bad happens because then the world is looking for excuses to be right on their bearishness and if somebody gives them more reasons for it, obviously it differs everything. So first is that tomorrow is an event for which there is a bit of an uncertainty and we should pass through that. After that the fact that India should fall and the rest of the world should continue as it is in the sense that India has unerperformed everybody arounded by 10%-15% and that I think will not sustain because of flow of money.
We all expected a few months ago when interest rate cuts and the US started happening that this money will flow to the current growth themes of India which are India and China. Now instead of that the money has flown to commodities, which are being driven upon the basis-and even yesterday I saw on CNBC US that these are all going up because India and China are growing. So ultimately there is a disconnect and it is not just-by coincidence Jaykumar was my project partner at IIT 25 years ago-the point is you cannot have it both ways. You cannot say that commodities should be up because India and China are growing but then nobody in the world-not everybody is a commodity investor, hedge funds can choose to go to commodities but if that logic that commodities are being driven out by growth of India and China is true then somebody who is a pure equity investor and there are enough of those in the world will find their way to India.
So India will do badly if the world really does badly and then we cannot overly outshine and secondly if we give our own reasons to the world that why they should treat us differently and tomorrow is one event which we have to cross hopefully nothing bad will happen because the team, the Finance Minister and his team is quite experienced and has done it a number of times. So firstly, we should not give specific examples to the world as to why they should treat us separately and secondly, the world should be as it is muttering along and we will do the same.
Q: So if nothing good or nothing bad happens tomorrow, we will go up or we will go down or market will do nothing?
Arora: Market will be up.
Q: You agree with that assessment if nothing happens?
Jaykumar: Market could be up. ’08 example is more important from all our perspective which is not we are entering March which has been a traditional tight period; we could face some liquidity pressures going forward.
I think the markets to my mind especially in the context of the rest of the world holding up and actually doing much better. We will find reasons to attract money. Will we in 2008 reattempt to make the new highs my own assessment is we will. We may not make it like in the past in a few months, we may make it towards the end of the year but my own sort of theme is that if you say even the last few days towards the end of a very difficult F&O rollover kind of period, the market is looking for reasons to not go down and therefore much as we might try to give reasons to the contrary, I think the market will be up tomorrow especially if the event is out of the way.
This time around, there are no expectations. There are a few negative things that have come through like STT etc so the event passes without major derailment. I think the markets will be up but more importantly I think we will have continued the base formation which maybe a slightly longer-term more protracted one. The problem of this 2001 tech was that we all ended up with the tech bubble at that period but technology remained. So everything that is in terms of information and the rest of the world is now assimilated things happen in a compressed period much more damage in shorter period. I think towards the end of this calendar year, we will definitely make an attempt to test new highs.
Q: You spoke about the primary market froth and whatever happened over the last six months. That has been flushed out of the system. Are you sure that has happened and you won’t see a resurfacing of those problems in the coming weeks?
Jhunjhunwala: It depends on the markets. After people have lost money in some issues, they will be more careful. I would blame all of us. Who asked people to go for those issues? So, we should blame ourselves. The fact that people have lost money will cause them to be careful.
If you compare last year’s Budget to this year’s Budget, last year we were entering the Budget with very weak international markets. When he increased the dividend distribution tax, that is what the market did not like.
There were a fair amount of positions last year in the system. This year, we are entering the Budget with very weak economic thought about the international markets. Surprisingly, markets have gained in the last month when India has not gained.
There are very few leveraged positions in the system. If he doesn’t do anything that the market does not like, we would go up tomorrow. I wouldn’t rule it out.
Q: Do you think we will go up with enough momentum to break out of the trading range that we have got stuck in? Will we go up a bit?
Jhunjhunwala: That would be difficult to predict. I don’t think there has been a complete cleansing of all this. I personally have no proof of it. But I feel that there is a lot of promoter involvement in the market. We have not seen the last of it. We will truly have ended this correction when we see the last of that. This is my hunch. I have no proof about it.
Q: Even if we go up tomorrow, if the event comes and goes without any kind of meaningful trigger, do you think we have built enough of base to go out and take a deceive step towards 6,000 Nifty?
Damani: The excesses are not rung out of the system. They are still there. Inflation will be a threat, which the analyst will start looking at. Arora made very intelligent points about gold and commodity inflation, but still inflation is bad for corporates profits. We all know that. We could enter a period of stagnation in this country. As all the panelists have said, we are all long-term bullish in India. Sometimes when the markets flash yellow, it pays us to be cautious while crossing the street.
If the market just ignored everything and gets back to make a new high, it would still perplex me. Markets are not that simple. Every dip is always a buying opportunity. I am arguing that the market needs time to pause for its breath. It has done a wonderful marathon from 3,000 to 21,000. I see nothing wrong if the market consolidates for a year. So, what happens tomorrow is anybody's guess. The internals of the market look weak and it is probably better for the market's long-term health if it takes a break and pauses.
Q: What are the odds that the market surprises everybody and doesn’t wait for 6-9 months, but actually dashes against this pessimism and closes to a new high?
A: That is quite possible because of the liquidity in the world. Liquidity has currently gone to a different asset class. In 1998, there was a Russian crisis and interest rates were cut aggressively. It led to a technology boom. There was no real connection between the original problem, which was the Asian crisis and a Russian crisis. Suddenly, it led to a technology boom. Obviously, it came out of nowhere.
In 2000-01, there was a technology correction and interest rates were cut. It led to a real estate bull run. With the real-estate correction and interest rate cuts aggressively, the money had to go to some class, which could be in the current context.
Q: Do we have a rally tomorrow after the event is out of the way? How good could that rally be? What could be the roof for that rally you think?
Jayakumar: Right now the consensus is, ‘sell on every rally’. To my mind that is what I keep hearing. I still believe that this base formation that is happening is important. Let more and more of the events, whether it is bad Q1 results, US companies, or whatever it is that people are looking for in March, be out of the way. I think the market are now beginning to tell you that it is digesting bad news.
If the market is indeed digesting bad news the way it is, it will be a matter of time to my mind that the world realizes that the
The fact that money is coming back to India in one form or the other is a reality. So, the issue is money will come in where they see opportunity. Whether you keep cutting interest rates in the rest of the world, India will have to follow suit. Ultimately, an underperformance in India today for any length of time will only make the rally stronger than otherwise.
We will know tomorrow what the Budget holds for us. But the general consensus seems to be that unless there is any major negative or overt negative tomorrow, we go up because there is been no expectation this time round. The market is light and there is no great positions which have been built-up. So, just get the event out of the way with no damage and maybe that will pave the way for a bit more green. We will find out if events actually play out along those expected lines.
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Today's Special Column
with Ashok Gulati
International Food Policy Research Institute , Director in Asia
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