Ravi Iyer, senior ED & co-head, Kotak Institutional Equities, says that investors are right now taking a breather in terms of market participation and are waiting to see how the Budget will pan out. There are expectations that the upcoming Budget will be pragmatic and growth-oriented.
Meanwhile, successful divestment of Oil India, NMDC and NTPC, on back of good FII participation, indicates good appetite for government paper by foreign investors. Iyer is optimistic that flow will continue in large transactions. He also holds a positive view on the entire banking sector.
"Recent move of fuel price hike is positive for both upstream and downstream companies, the investors are reacting positively to it," says Iyer.
Below is the edited transcript of his interview to CNBC-TV18.
Q: What sense do you get of flows now from investors attending your conference? Are they more likely to pause before the Budget is announced?
A: I think investors are waiting to see the fine prints of the Budget and how it pans out. I don't see any indication of a trend change, like investors not feeling optimistic about India or something other. Right now, investors are taking some temporary breather.
Q: How is the Budget playing in the minds of institutional investors?
A: As the finance minister indicated in the press, that it will be a pragmatic Budget. Of course, there are challenges both in terms of fiscal and CAD, but we are hoping for a growth-oriented Budget and I am sure to see the Budget on expected lines.
Q: Some macro details of the Budget have already been put out at the system and lot of money came in the first month and a half. Do you see any risk of sharp downside to the market post Budget?
A: I am very optimistic about the Budget as we saw many favourable decisions and policy action in terms of Budget. I assume it to be a good Budget.
Q: Infrastructure has been a problem pocket for the market. Did it find a lot of mention in your conference?
A: We had a very interesting theme today, which we aptly titled as 'Building India'. Some eminent speakers spoke on agricultural and infrastructure sector. I think there is much momentum in consumption and potential for dramatically improving agriculture and productivity. This looks like an eternal story and we have a long way to go. We are very optimistic on the overall consumption theme which India can offer.
Q: Many banks were present in the conference as well. How are people approaching the banking sector and how they see the big gap between the performance of public and private banks?
A: I think well-managed banks will continue to perform well. After looking at this quarter result, I don't think the results of any private or public sector bank is alarming. Given growth possibilities, I think banking is a great sector and I continue to have a positive view on banks.
Q: There were some disappointment around earnings and what that may lend to the market's valuations?
A: In market valuation terms, I will not get very fuzzy about quarterly earnings. I would like to look at a 2-3 years horizon, which even the long-term investors are looking at. We are seeing an up tick in growth. We need to wait and watch if it can deliver better than expected returns.
At the moment, I don't like to comment on any analyst downgrades of estimates for FY14. I like to wait for next 2-3 quarters, and if all moves well then we are in midst of a good market again.
Q: What kind of appetite do you see from investors for the government paper which will come up post Budget?
A: I think there is enough appetite as we saw some successful rollout of PSU disinvestments; like Oil India, NMDC and NTPC where we saw huge interest from global players and these issues were of decent size. So I do not think that will soak up the liquidity from the secondary market.
In fact, during these opportunities the market expands and the increase in float in these large companies will benefit India. We are optimistic on the flows continuing to come into these large transactions. So I do not think that is a problem.
Q: In the second half what will be the greater challenge for markets? Will it be domestic issue like the impending elections or global markets turning bit choppier?
A: We live in a very dynamic and volatile world, so let’s take one quarter at a time. I think we are in a nice frame of the market where liquidity is decent, people are interested in this market and things are turning for the better. So I would remain optimistic.
Q: There are some oil and gas companies presenting as well? How did institutional investors read the development in terms of fuel price hikes and are people confident that it is a trend that will continue?
A: Fuel price hike is a big change and positive for both upstream and downstream companies. The stocks of these companies have started performing well and investors are taking it positively. On the macro front, the hike is beneficial from a fiscal point of view.