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Jan 31, 2013, 09.24 AM IST | Source: CNBC-TV18

Budget 2013: Market outlook positive for next 6-12 months: Nirmal Jain

Nirmal Jain, chairman, India Infoline, says that the market may be range bound and will hold around 20000 levels before the Budget. The government is taking several steps towards reforms, like diesel price hike and cut in subsidy of LPG and fertilizer, so I am positive and optimistic, I think growth will come back.

Nirmal Jain, chairman, India Infoline, says that the market may be range bound and will hold around 20000 levels before the Budget. The government is taking several steps towards reforms, like diesel price hike and cut in subsidy of LPG and fertilizer, so I am positive and optimistic, I think growth will come back. The market looks fairly positive for next 6-12 months.

Also read: Better enjoy market rally while you can: Marc Faber  

Below is the edited transcript of his interview to CNBC-TV18.

Q: Yesterday many bullish brokers were looking at a scenario of may be a 100 bps cut through the year. The Reserve Bank of India (RBI) governor sounded more limited in his aspiration for rate cutting in the current year. What are you looking at in terms of rate cuts and equity market gains, aside from the rate cuts?

A: A rate cut of 25 bps was expected but Cash reserve Ratio (CRR) cut was a bounty which was bit of a pleasant surprise. Surprisingly, yesterday market did not react positively but there has been huge inflow in FII numbers over last few days. According to my hypothesis, our domestic players, particularly large insurance company like Life Insurance Corporation of India (LIC) they are creating liquidity to participate in government disinvestment.

On one hand, Foreign Institutional Investors (FIIs) are buying but that is met with supply from domestic institutions, so the market is not moving up. But, I think these reforms are very positive, the monetary policy easing, the interest rate cutting down. Governor has been always cautious and conservative, but he has very clearly mentioned that if current account deficit and inflation improves then one can expect more rate cuts. On fiscal front, the government is taking several steps towards reforms, like diesel price hike and cut in subsidy of LPG and fertilizer, so I am positive and optimistic, I think growth will come back. It may come back later in this calendar year, but market will look positively. So, the undercurrent is bullish. The market looks fairly positive for next 6-12 months.

Q: Given India's out performance last year and also the heavy issuance calendar as you pointed out, both of them put together do you think that will keep the market range bound before the Budget or could we see a bit of a pre-Budget rally?

A: The market may be range bound and will hold around 20000 levels before the Budget. The finance minister has made several statements in his meetings with foreign investors outside India that it will be a responsible Budget; and not a populist Budget. He is very clear on bringing down the fiscal deficit, he is very clear about going forward on reforms regardless of political pressure. So, all these indicate towards a positive Budget. Market had a good run-up last year, so it might consolidate at these levels till Budget and after Budget we will get clear direction.

Q: The darlings of the last 12 months were some interest rate sensitive especially the private sector banks as well the consumption companies, Fast-moving consumer goods (FMCGs) if you please, what will be the darlings of 2013 n your estimate?

A: In 2013 the new sector that we should look for is oil and gas; upstream companies as well as marketing companies. Our research has recommended companies like Oil India and Bharat Petroleum Corporation Limited ( BPCL ). The second sector is cement sector and particularly north based cement companies.

Other than that I think banks will continue to do well. FMCG has run up so it will perform in line with the market, but some select pharma stocks and IT sector can be very interesting because rupee will be under continuous pressure, current account deficit (CAD) is high and some of the IT companies have reported very good numbers. If I have to put my bet for 2013 then I will look at oil and gas, IT, cement followed by pharma.

Q: What about asset allocation? In the money markets, bonds would also give you some kind of returns given that rates are going down, plus equities have already performed last year. Gold is in very tight range, how would you allocate your assets given the market movements?

A: Real estate and gold may under perform the other asset classes. Although equity markets might outperform bonds because of the general buoyancy but one has to have a balance approach because if there is any event which can be negative then equity markets can get into negative returns also.

However, bond market looks good and I have a feeling that bond prices will rally further. From asset allocation point of view equity and fixed income will be the dominant part of assets. In 2013 one can look at reducing the weightage in real estate and gold investments.

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