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Feb 04, 2010, 10.25 PM IST
Jyotivardhan Jaipuria, Head of Research, DSP Merrill Lynch, expects part of the fiscal stimulus to be rolled back in the Budget.
On markets, he says 2010 will be year of consolidation and sees new money getting invested in new issuances.
Speaking on the earnings season gone by, Jaipuria says the numbers was broadly inline with expectations. He expects a 3% growth in FY10 earnings and strong Q4 auto numbers ahead of the duty roll-back.
Rahul Chadha, Head of Indian Equities, Mirae Asset Global Investments, too shares Jaipuria's view on the stimulus rollback.
Here is a verbatim transcript of the exclusive interview with Jyotivardhan Jaipuria on CNBC-TV18. Also watch the accompanying video.
Q: What have you made of the Kirit Parikh recommendations? Would that change your opinion on the sector, whatever you cover in the oil sector, if implemented?
A: These are recommendations, which are good. The issue is that whether in a very practical way we can implement it and what sort of a timeframe we have for the implementation of these recommendations because the government will have to weigh all pros and cons of the report before they take a step here.
Q: Even if you work with the bearst expectations on what the report could deliver – for example only petrol gets deregulated – what kind of flow through impact have you assessed for the various legs in oil marketing, upstream – the other ancillaries?
A: We cant talk on particular numbers but essentially what will happen is there will be one subsidy element, which will still come unless you just go and implement whole of the report. And how they share the subsidy element is also important, so even if they implement a part of it that would be still positive for all the players of the space whether upstream, downstream. It will be positive for them but there will be that counter balancing as for the consumer the prices go up. So you have inflation, which will move up.
Those are the issues which the government will consider because these are something, which we have been talking about for the last five to six years and in some sense the government has been debating where thy should go exactly on this.
Q: What about the market there has been quite a shake down and now some attempt at a recovery? How are you feeling about even the near term progress of the market now?
A: Our view has been that the markets would correct pre-budget and a couple of reasons why we were negative have come through, one was the high inflation and other was the credit policy. The third one right now is the budget and I think in the budget we are expecting some part of the fiscal stimulus given in the previous year to be rolled back. So in the run up to the budget, typically, we see the markets doing well.
But this time we might see a bit of reverse phenomenon where the markets are soft in the run upto the budget because we expect the fiscal stimulus roll back. So we could still see some weakness from these levels but we will have some slow fall in the market after the sharp dip we’ve have seen over the last few weeks.
Q: What is the sales test telling you about whether most of the pressure from the FII outflows are done for the moment or not? What are your key client suggesting?
A: What we saw in selling was linked to two things and one was that there are new issuances, which we are seeing. Some are actually going to the new issuances rather than the secondary market. The other if we see globally. There has been some weakness in the market because the dollar has strengthened, which last year was the big trade everyone was playing, the dollar carry trade.
The second is China tightening that did catch people a bit by surprise, which was not exactly consensus. So I think markets have weakened every and if we put this on context a very small correction relative to the games we have seen to the past nine months to a year. This is more like the markets have ran up too fast and we needed some excuse to start taking some pullback and that is what we are seeing really.
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