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Moneycontrol » News Center » Markets » Expert & FII Outlook
7% GDP growth unrealistic if monsoon is deficient: Kotak Eq
Published on Thu, Jun 25, 2009 at 09:49   |  Updated at Thu, Jun 25, 2009 at 15:37  |  Source : CNBC-TV18
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Commenting on how the alarming monsoon news would impact the market, Sandeep Bhatia of Kotak Institutional Equities, said the worst data till date had been the monsoon deficit of 89% in 2003, where India faced a drought. "93% data is of course a cause of concern for the market," he said, adding that the market may react with a bit of caution.


"If the monsoon is an underperformer, the economy suffers on a top-down basis."

Also Read:

IMD downgrades monsoon forecast to 93% from 96%

Too early to paint gloomy picture on agri: Shubhada Rao

“The tax revenue collection will suffer because of the economy not growing as strong as it was anticipated.” Consumer staple and the two-wheeler sector to be affected by deficient rainfall. Also, interest rates would be adversely impacted, Bhatia added.

“Looking at 7% gross domestic product (GDP) growth rate with this kind of expected monsoon is unrealistic,” he said. “Our GDP growth expectations have been more moderate at 6%.”

Here is a verbatim transcript of the exclusive interview with Sandeep Bhatia on CNBC-TV18. Also watch the accompanying video.

Q: What is your sense on this monsoon news—would you be perturbed by it? You think the market needs to factor or price it in or it has not reached alarming proportions for the market just yet?

A: I am not a weather expert but in my last 17 years of experience and looking at this kind of data, the worst, I remember, has been the monsoon deficit of 89% and that was probably in 2003, when we had this bad drought and 2004 was a very great monsoon after that. I think 93% data is definitely a cause for concern for this market. In fact, anything around 93% is a cause for concern. I would think the market will react with a bit of caution. The next fortnight, as we have been told, is going to be extremely important. But clearly, someone who would be looking at 7% kind of growth rates with the kind of expected monsoons would be difficult. Our own expectations of GDP growth have been more moderate at 6%. Thus, I think probably the reality will be more around 6% growth rather than some of the strong growth rates which the market was factoring in post the election.

Q: Do you expect other metal companies to show any scars? Today, of course, is Tata Steel numbers, but you think some other companies may head the corporate debt restructuring (CDR) route?

A: It is difficult to project whether that exactly will happen. But, I do think that equity infusions and balance sheet restructuring will be the norm. In any company, which has gone aggressive in 2006 and 2007 whether it is the metal, auto or any other space where these aggressive expansion and acquisitions has happened. Thus, we need that to happen and thankfully the markets are broadly supportive of cash raising and equity infusion—that is the best part of this rally. In fact, which is why the markets are giving us room to restructure and reposition the balance sheet.

Q: How are you feeling about the market right now in the run up to the much-expected Budget?

A: I can say one thing definitely—the market is now at fair valuation. If you look at fundamentals, there was a time when the market was initially running up. I had clearly highlighted that the market is running up because it believes that the fundamentals will improve and that improvement is all in front of us. What will now happen is that the earnings estimates will give a revised up and the earnings will look better than they were looking. But that still does not change the fact that the markets have already run up and are now at fair valuation.

For the specific issue around the Budget, I think again there will be a lot of media hype as is the case in every Budget. However, I think, this time around, I would be more hopeful for at least positive noises and good intentions getting reflected in the Budget. On top-down basis, the key issue in India is macro and the huge fiscal deficit.

What this Budget needs to reflect is that there is going to be significant roadmaps give it in this Budget to how this is going to get corrected in the next three years. I think the proceeds on 3G as well as the proceeds of disinvestment will be the numbers which are going to be most actively monitored. Thus, I would not be surprised if we see a very strong number come through. I really hope, for the sake of this country, that this number really gets done because we did not see much happen in the first installment of the United Progressive Alliance (UPA) government.

So I think we are in a better position for this to happen and the Budget will, at least, show a roadmap and positive intensions, which will be very positive for the market. Hence, while in the near term as far as fundamentals are concerned, we think it is fully priced. Around the Budget and the good numbers that the Budget shows there could be a rally.

Continued on next page...

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