Interest rates, divestment programme key drivers now: Enam

The week witnessed a quiet start. However, the sentiment is uplifted which is expected to give the market a fillip. There has been a huge relief rally post Budget, which is now coming to an end, says Nandan Chakraborty, Managing Director of Institutional Equity Research at Enam. 

He feels Budget's contribution to market has been over and it's oil and gas reforms, government's divestment programme and uncertainty over interest rates is what will decided market's next course from here on.  

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

Q: Do you think it is just a relief rally that we saw post the Budget or is there more to it?

A: It was a relief rally because going into the Budget I think there was a lot of negative sentiment. There were global negatives including crude oil prices going up and stuff like that and the European scene and so on. On the domestic front there was a lot of fears of government having a lot of expenditure but subsequently what happened was that the government reduced the projections for expenditure and the rabi crop forecast came in very good. So these are some of the scenes which led to the relief rally. I think going forward now it all depends on global factors rather than local because if you look at what the government is planning, it is planning five major initiatives this year which will change the trajectory of India - on of which is oil and gas reforms which is the only one which will have an immediate effect. Specifically, right now, I think a lot of people are worried about interest rates and specifically the interplay of crude oil and the INR – the rupee versus dollar on the global front. Also what they decide in terms of the oil subsidies will to an extent decide the divestment programme; so it will be like one thing leading to another.

Q: For what the Budget has delivered, would you say that most of this relief rally is behind us or does the market have potential for more?

A: Budget has done its bit, contribution of the Budget is now more or less over. Now it is the oil and gas reforms. The government is also hamstrung in a number of ways. It is not easy for the government to maneouver given the global uncertainty. So if crude oil keeps going up, specially in rupee terms that is after you adjust for the rupee-dollar, it will be little bit difficult for the government to do too much. On the other hand, if it is more or less stable then the government may decide to pass on and therefore reduce the Budget deficit.

Q: So far the government seems reluctant to blink on any kind of rollback with oil prices etc; how do you see this whole oil subsidy thing panning out during 2010 which you think is a central issue?

A: It is very difficult to say this because the government cannot – there are two things that governments do whether it is China or India, both have done similar things, one is try and get assets abroad strategically where China has been doing far better than us and the other is to have certain schemes which are valid between certain ranges of oil prices. To do something permanent is not easy for the Indian government or for the Chinese government for that matter. So I think it will continue to be if oil is between this and this, then we will go in for these sort of policies. The really long-term policies actually will have to wait for a couple of years till the unique identification system is in place and stuff like that. So the full implementation of the subsidy going to in a targeted manner to the right people which is the real solution will take a little bit of time.

Q: There is the large sized National Mineral Development Corporation (NMDC) follow-on public offering (FPO) that opens tomorrow. Today we have seen quite a bit by way of secondary market action. Do you expect that to weigh down over the next couple of months on the secondary market, the primary market action?

A: Yes. Even the new regulation that you have to put in your entire money in turn affects the secondary market – the primary market itself will affect the secondary market. So it will play a part. Suppose Europe recovers in a quarter down the line and therefore the US dollar comes down, basically the rupee appreciates — that sort of takes care of most of our problems. Then everything falls through, you have divestments, IPOs go through, therefore you have credit growth in India. So the whole cycle turns. So I would say that is the major call which nobody has an answer to at this point. The rest are relatively minor matters there.