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Sanjay Sinha, founder of Citrus Advisors, tells CNBC-TV18 that Indian equities will revisit previous highs by June-September.
Indian equities will be concentrated on local events like UP election results and the Union Budget this month, and not as much FII flows, says Sanjay Sinha, founder of Citrus Advisors. “The initial fire that was brought on by FII flows needs to be sustained, and for that to be done the local events now have to take the front seat,” he said.
According to him, the market expects the UP election to result in higher seats for the Congress and its allies, and also strong footed reforms from the Budget.
Due to these events, Sinha says that the March series will be volatile. But once the rate cuts start post April, he says “ the market might see a strong rally in the period up to June or if that doesn’t happen then between June to September we should be revisiting the previous high of the market.”
Below is an edited transcript of his interview. Also watch the accompanying video.
Q: What is your sense of how the market move between now and the Union Budget?
A: I think there is fair amount of anticipation that the developments going forward will be positive, in the sense that the election results would improve the number of seats that Congress or its allies have in different states, more particularly in Uttar Pradesh (UP).
Since the Union Budget is going to be presented about a week after the elections, I think the market is expecting that given the broader slowdown in the economy and the efforts being made to remove the bottlenecks in some of the key, sectors particularly power and other infrastructure, there is a sense of expectation that the Budget will be fairly good for the broader economy.
Also the fact that it is now too late in case they want to deliver results as far as the current government’s term is concerned, so there should be some strong footed reforms in the Budget. So overall feeling of anticipation of positive events is what is also at the back of the market right now.
Q: What is your sense of how we come out of this month? Do you see the market holding strength or do you think it’s going to be a much more volatile series for us?
A: I think it’s quite likely that the market will be very volatile because at the end of the day the Budget is a black box; we have a set of expectations and we are expecting the budget to deliver everything on those expectations. Suppose it doesn’t I think that will leave some room for disappointment and therefore the market’s retracement.
At the same time there are some reports in the media that the excise and the service tax rates might be rolled back to where they were in 2008. Historically the market has not reacted positively to tax rate hikes and therefore if the other sets of announcements in the Budget are not strongly positive, then this particular announcement in isolation would be a disappointment for the market and therefore the knee jerk reaction could be negative even though the medium-term to long-term reaction might be positive.
Q: How would you rate this move by the government in order to raise some money for itself, not going via more public move or including the retail crowd to do an auction or close auction like this and set the prices it sees fit?
A: I think it is an out of the box approach by the government and I think it is driven purely by the desperation to ensure that the fiscal deficit number for FY12 is closer to 5.5% than 6%. I think this is not the only thing that they are doing which is offering ONGC through the auction route; there is also an attempt to monetise the holdings of the specified undertaking of UTI (SUUTI) through the creation of an asset management company. So both these things will at least bring the disinvestment target little closer to respectable number than what it is currently which is somewhere close to Rs 1150 crore.
Q: What is the bigger trigger for the market? Is it more fixated on the ample global liquidity sloshing around now or are election results, monetary policy, Budget etc going to be more influential in determining India’s market performance?
A: You cannot deny the fact that the initial fire has been provided by the liquidity that has come into the market. In fact, if you exclude the HDFC sale, the net FII flows to the country have been close to about Rs 25,000 crore in the current calendar year.
But that initial fire needs to be sustained and for that to be done the local events now have to take the front seat. Political developments do have a profound impact on the short-term opinion on the market, but for the medium to long-term the government now has a fairly large role to play as far as the Indian capital markets are concerned. So what they need to do is not just make noises about policy but go about seriously implementing many of these projects as well as the policies that are being announced.
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