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

Q: Which camp do you belong to that the markets fairly valued and needs to retreat from here or do you think the momentum carries us higher even from here?

A: In the short-term, I would say that the market could retreat because, at least we get the feeling, that the market is pricing in too much from what the government could do in this Budget. We are not saying that the government will not don it-but just a question of timing. It could be possible that lot of the reform measures could come over the period of five years. It may not happen in the coming Budget. That could disappoint the market. But over the medium-term, we still remain reasonably positive on India.

Q: The difficult one to put your finger on has been the flows and money interest into India. How would you gauge that or map that for the next couple of weeks?

A: I think, among emerging markets, India would still remain one of the destinations to put money. So even with what has happened in terms of the market rising sharply post elections, we are seeing a lot of money coming in. However, over the past 15 days, what we are seeing is that the risk appetite seems to have come off a bit, the Unitech QIP on Friday surely being an exception. There are at least 15 QIPs that I know of are on the road shows and haven't been able to close out the deal. So, I think investors are picking and choosing where they find their risk appetite is better for them. So it's a very difficult call to make. However, I would still believe that India would be one of the favoured destinations among emerging markets.

Q: If you are suggesting that the market needs to retreat first, do you think it will be a mild retreat-10-12% no more than that from here or do you expect a much bigger decline which scares off the new entrants?

A: It's a difficult call to take because it's an event risk. We don't know what's going to happen. Thus, it's trying to see a crystal ball and seeing what may happen. However, if I look at everything and put things together-the fiscal deficit that the country is currently running, the difficult situation in terms of the gross domestic product (GDP) growth resetting itself from a fast pace of growth of 9% to 6-6.5%, corporate trying to readjust to this new thing of slightly slower growth-there is a lot of readjustments that would have to be done.

So, if what the Budget shows up next Monday isn't what the market is trying to expect, we could see violent correction. We have seen this market being a bit more volatile than it has been in the past, so we could see a bit violent correction. Difficult to say whether it will be 10-15% but once that is reset, we could see the market moving up over a period of time. So, on the medium-term, I would still remain very positive; short-term, I think we are in for some disappointment.

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