Valuation premium to reduce post budget: Morgan Stanley

Here is a verbatim transcript of the exclusive interview with Narayan Ramachandran on CNBC-TV18. Also see the accompanying video.

Q: Are you going to be like the PSU bankers who said 10 on 10 for the budget or are you going to be more circumspect and say it's a missed the opportunity and could have done more?

A: I am going to go with 5.5 on 10, simply because it's an interesting number different from 5. There are two ways to look at the budget. One way that many people have chosen that it's a political statement, which needed to cater to the electoral promises made to "Bharat" as the phrase has now become. But I think there is the other side as well. This was also an important policy statement. India as you know doesn't have the state of the Union official speech. In that sense, it could have been that speech which would set the tone for the next five years. Even if it was going to be short on specifics, I think there could have been many more new policies. So, good in the sense that it does recognize the importance of rural India, but not so well in the sense that it could have done a lot more.

Q: What has it done to the market because the point people have made is that it has done harm. Would you say we are right back to where we started off after the budget and it is sort of come and gone?

A: Indians are used to rationalization. So, after any event happens, we are very good at figuring out how things were not so bad and it was the middle part and was balanced and so on. As the old clich� goes, it takes two hands to clap and the market was clapping with one hand in the stratosphere and the Finance Minister on behalf of the government was definitely in the troposphere, if not actually the sub-terrain. So, the two hands missed and they didn't clap. If fault were to be assigned, it would probably be assigned to both sides. The market jumped the gun and read too much into single events. The Finance Minster for possibly, at least in a conceptual sense, loosing an opportunity.

Q: Do you think the market has priced it in and we get back tracking global cues or is that more of a lingering impact for FII flows etc?

A: It is very tough to know precisely. But if I said that India had sort of a 10% or 10-15% premium versus the rest of emerging markets, then we have subtracted and gone back to one this morning. I think there is a little left because a few things were left to the future for example information on the petroleum subsidy and so on. So, there were lots of things on the budget, divestment is the other one which might happen. I think there is still about a 5% cushion premium being accorded to India in the hope that there will be an off-budget set of reforms. That will happen. But if that doesn't happen again in due course, I suspect that premium as well will likely be eliminated.

Q: Which way would you lean now by the way of disinvestment or divestment? Would you stick with the USD 4-5 billion that was earlier talked about or do you think that needs to be scaled down?

A: I think it will be scaled down in an implementation sense. India as you know has not crowned itself in glory with execution. So if I were to fall on either side of the execution, I would fall on the lower side. The intentions are good. They are to essentially trying to raise Rs 25,000 crore. This being a shortened fiscal year, we will start to see more in the second fiscal than the first. But again that is a drop in the bucket. Expenditure is north of Rs 10 lakh crore, so it is a small number even then.

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