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7% GDP growth unrealistic if monsoon is deficient: Kotak Eq

Published on Thu, Jun 25, 2009 at 09:49 | Source : CNBC-TV18

Updated at Thu, Jun 25, 2009 at 15:37

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Sandeep Bhatia, Kotak Institutional Equities

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Nifty

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Jaiprakash Associates | Jaiprakash Power Ventures |

Q: Your thoughts on one stock that you track- ITC . That seems to have some problems in both its core markets, Mumbai and Delhi.

A: For ITC, the Budget is going to be an important event. We know that the government will need to raise revenues. We have seen that some state governments have moved to raise the value added tax (VAT) level from the level of 12.5%, which was the rate at which the cigarettes were charged to now 20%. I think we will see headwinds for that business essentially in terms of taxation especially in environment, where both the central and state governments are going to look around for every source of revenue. Going into the Budget, I think, this business and the stock will face headwinds. The other issue on operational terms is going to be how the non-tobacco business, which is the consumer good business, tracks. The market is closely looking at how that business operating loss levels move and expectation is that, in the current year, they will start falling. Therefore, we will have to wait and see whether that actually does happen.

Q: Which segments do you see getting affected by any kind of monsoon hangover, if that happens?

A: Well, if the monsoon underperforms, then the economy suffers on a top-down basis. The tax revenue or collection will suffer because of the economy not going as strong as anticipated and therefore the reality is that it will be a macro impact rather than one specific sector. It is obvious to say that the two-wheeler sector or the consumer stable sector will get affected. However, I think the real question is and the real driver to this rally in India is the big top-down macro change that everyone has factored in and to some extent we get pushed out. I do not think we undo what can happen because the government can really do a lot of things but the timeline gets pushed back by a year. So apart from the impact on two-wheelers and consumer stable, the real impact will be on interest rates, on fiscal deficits and the ability or rather the pace at which the government can consolidate and bring down the fiscal deficit level. We have to remember that right now the levels of fiscal deficit that we have reached are extremely high unsustainable and most as high as one in 1991-1992 when the economy and government were dealing with emergency measures. Right now the mood is bullish. The ability to do things is much more than in the early 1990s but the situation is very close to where it was then.

Q: What you might like best from between JP Associates and JP Hydro and now talk of power ventures being merged into a hydro?

A: I think the entire group is positioned in a sweet spot. I expect a lot of announcements and work to be get done in the infrastructure space. I think we have commitment coming from the very top of the government that needs to be tackled. To that extent, I think, JP Associates is in the best position. It is a large liquid stock with a lot of interest from investors. It is definitely going to be a big beneficiary of the infrastructure thrust, which is the priority of this government. My preference would be for this stock essentially as it is large and liquid.

Disclosure:

It is safe to assume that my clients and I may have an investment interest in the stocks/sectors discussed.

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