FM may not do much in Budget '09: Morgan Stanley

Q: At this time, what's your prognosis for the Budget, market, equation or reaction?

A: Let's look at the backdrop; we are running a fiscal deficit of about 11%, every company wants excise duties to be cut, so the demand for more sops from every corner that we can think of and I think the Finance Minister's hand will be tight. The Finance Minister need not do everything in the first Budget that he is presenting. Our belief, on the fiscal deficit is that, at a time when economy is going through a difficult phase, it isn't such a bad thing because if we go a year back-our fiscal deficits were helping other economies because of oil, food import and fertiliser imports. This fiscal deficit is more internal and it's acting as a stimulus to the economy.

Thus, maybe they will continue with the fiscal deficit for another nine months and that's actually boosting consumption. Knowingly or unknowingly the government has been, because of the fiscal deficit, had a stimulus package working throughout the last 12 months. And maybe that's the reason why the gross domestic product (GDP) hasn't gone down as much as most of the other economists would have expected. So, I think they will continue with this. You have to keep in mind that there are another three State elections coming up and the government is not going to lose focus on that.

So I will bet that the reforms will be back ended. I am saying reforms, which the market likes and some of the other measures, which the government is putting in place, will continue. At the balance, I would say that the markets maybe disappointed at the end of the Budget on Monday but then will come back on track because the economy will continue to grow. As I said, we still have a large overweight on India and emerging markets and we think India is a good destination to invest.

Q: Aside from real estate and infrastructure, how you are approaching some of these stressed balance sheet stories. Does this look like a good opportunity to buy into something like a Suzlon, for eg, or not quite?

A: Everybody would have to take their own call. In some cases, once they get credit, some of these companies could revive again but the question is if it is depending on international demand then one has to look at how some of these economies are shaping up. Hence, I guess, it has to be sector by sector or stock by stock. Just because credit is available doesn't mean that these companies would start doing well again. It's possible that some of these stocks were beaten down because of non-availability of credit so there is an opportunity for these stocks to move up but finally the stock will do well on a sustained basis only if the company starts doing well and starts to show growth. Therefore, I guess that would be the key for all of these companies who have stressed balance sheets.