Nischal Maheshwari of Edelweiss Financial Services, talking to CNBC TV18, says he is not disappointed that the Budget 2013 hasn’t provided a thrust on investments. However, given the prevailing scenario of high interest rates and escalating cost of funds, corporate India's earnings estimates may take a hit if the RBI does not go ahead with a 100 bps interest rate cut, with fiscal deficit now at 5.2%.
Below is the edited transcript of the interview.
Q: Across the board you will bring down earnings per share (EPS) estimates by 1.5 percent because of the tax?
A: Yes, more or less that would be the case. But I think it will be around 1.5 percent lower for specifically for people who have been paying minimum alternate tax (MAT) as far as earnings are concerned.
Q: Is there any reason for your change in estimates for corporate earnings for FY14? Is it because the Budget 2013 hasn’t provided a thrust on investments and capex?
A: For the moment, no. The one thing which we have been building into our numbers is actually around a 100 basis point (bps) cut in interest rates, given that the finance minister has achieved his numbers for FY13 at 5.2 percent fiscal deficit. If that doesn’t come through, then we may revise our earnings down a bit.
Q: Power tax holiday has been increased, but you have this little bit of a googly on coal and the import duty used for thermal coal. Does life become a little easier for power companies?
A: For power companies, I think the duty goes up. So, for people actually who are importing after 2 percent increase in custom and a Countervailing Duty (CVD), I think the impact on them will be close to 1 percent. So, do not see much impact as far as power is concerned.
Q: At least in the Budget it looks like consumption is going to be curtailed. Would you recommend profit booking to anyone holding positions in consumer stories like a Jubilant, Titan or perhaps even a Pantaloon?
A: I think most of that is already done in. If you look at the gross domestic product (GDP) figure for the last quarter or the number which was declared yesterday, most economists believe that this is the bottom.
I believe then these stocks will definitely see an uptake, and hope still remains that there is going to be an interest rate cut. I think discretionary spending should be picking up, rather than going down from here. So, I don’t see any reason for selling out on these stocks at the moment.
Q: Is there any stock that you would be positive on after the Budget? I thought Ashok Leyland was the easy answer because of that Jawaharlal Nehru National Urban Renewal Mission (JNNURM) thing? Can you think of any others?
A: I think Ashok Leyland or the auto manufacturers specially those into buses. That’s a very clear indication in the Budget that there is a provision of Rs 14,000 crore under the JNNURM scheme that around 10,000 busses are going to be procured the year. Obviously Ashok Leyland is a beneficiary out there because it is a predominantly bus player. To a certain extent, Eicher Motors and Tata Motors also would be benefit from this.
Q: What led to that 4 percent cut in the bank index yesterday?
A: I think that now as we are going through the details of the Budget, there were provision against bad assets which was being taken into consideration twice, and the tax implication because of that. This was an advantage as far as the public sector banks (PSU) banks were concerned. The government is now saying that you cannot take that tax provision twice, and the advantage the banks had will go away. I think it’s because of this that the PSU banks took a cut.
I think, however, that private sector banks had more to do with the fall in the bank index. It was an over-owned sector and because of an issue on the general anti-avoidance rules (GAAR) side, where the market got spooked because of Double Taxation Avoidance Agreements (DTAA), I think there was a huge amount of selling from the Foreign Institutional Investor (FIIs) in that sector.
Q: How are you looking at the market now? Its back is broken, isn’t it? The decimation of the mid-caps began earlier and intensified because of the Budget. Would you say it is going to be tall now to ask for the market to get past 6,000?
A: I definitely think so. I think it is going to be slow and steady. People would like to watch out the numbers coming in, the economy and companies delivering the numbers. I think it is going to be a slow process. It is not going to be the flows which were driving the market earlier. This is going to be a slow call.