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Oct 03, 2012, 02.22 PM IST
UR Bhat, MD, Dalton Capital Advisors is not ready to laud the government for announcing reformist measures. Bhat calls it an effort to boost sentiment rather than making any substantive changes to the economy.
UR Bhat, MD, Dalton Capital Advisors is not ready to laud the government for announcing reformist measures. Bhat calls it an effort to boost sentiment rather than making any substantive changes to the economy. Speaking to CNBC-TV18, he complained that fundamental issues in infrastructure sector still exists and investment worthiness can be attributed to this nation only when infra companies are able to roll out projects they are stuck with.
Speaking on the progress made by rupee, Bhat observed that the currency had recovered most of year-to-date losses but it will weaken again due to lack of structural growth in exports.
Bhat advised investors to go long on the market currently and believed that inflows to India will continue on strong monetary easing. "Net, net I think one needs to be a buyer with the market having gone up by 25 percent YTD on the back of some USD 15-16 billion of FII inflows," he justifies. Bhat, however, feels it will be difficult to get 6000 on the Nifty.
Here is the edited transcript of the interview on CNBC-TV18.
Q: The announcement of reforms continue, no progress on the big macro economic reform of the fisc but fairly good announcements coming in terms of trying to get more money into insurance, perhaps that way step up the savings rate. I don't know if that will help as well trying to put that money into infrastructure stocks. Why don't we begin there, the toughest nut to crack, how would you look at the infrastructure stocks?
A: I think there is some effort at buoying up sentiment, if nothing else in substantive terms. Therefore, I think this space is worth closely watching. But, in substantive terms whether the infrastructure companies are able to push ahead with the projects that have got stuck is actually the final decider as far as investment worthiness is concerned.
Issues are still not sorted out whether it is in terms of raw material, whether it is in terms of land or resource availability, all these issues still need some action. But to the extent that announcements and monetary easing can help, I think all that has been done.
Therefore I think it is worth watching and one thing that most people have agreed on is that if the government is committed to take action, quite a lot of these things require legislative action which may be difficult for this government to push through. Hence, I think within a boundary, whatever is best possible they would certainly do. We should count on that being done over the next month or so.
Q: Even if some macro economic issues like the fisc are not sorted out the rupee is going gung-ho for the markets, it is a rank outperformer with some 6 percent gains coming in the last few weeks itself. Do you think this could ensure that the stock markets are going to remain cheerful for sometime now? Net-net are you a buyer?
A: Net, net I think one needs to be a buyer with the market having gone up by 25 percent YTD on the back of some USD 15-16 billion of FII inflows. That I think is the case. People need to go long on the market. But, the fact is that most of the returns that market has provided is on the back of FII inflows plus some sentiment boosters that we have seen over the last couple of weeks.
In substantive terms, nothing much has happened. It is only because of the flows and marginal balance of payment positive position that we saw for the last quarter is what is keeping the rupee up. It has been quite a substantial gain. All the losses that we have made from the beginning of the year in the rupee have been regained.
Therefore, I think there is a limit up to which it can go becuase exports are still negative, we are not able to grow our exports and just because oil prices have been somewhat soft from the last quarter and gold imports have weakened a bit, we have a margin on balance payment positive for the last quarter.
But, I think that may not be the position going forward, because as the busy season comes we will probably need to import a bit more. There is certainly some growth in oil imports plus the structural problem of lack of export growth is something that will probably keep the rupee somewhat soft as we go along.
On the macro international side, whatever could be done in terms of monetary easing has been done, whether it is in Europe, whether in US. I think the difficult political and social decisions that need to be taken, whether it is in Europe or US, has not been taken. There are limits to addressing economic problems through monetary policy. I think that limit has been reached because the maximum possible monetary easing has been done.
The fact is that we have elections going on in US now and there will be elections in 2013 in Germany. Therefore, the whole effort would be to ensure that the economies do not really collapse. That is as far as action would be taken. It is not really to solve the problem. The difficult political issues are unlikely to be addressed in the short-term.
There is certainly pain in the medium-term because of the extent of amount raising that we have had. We will probably continue to have some inflows on account of monetary easing. But, we need to wake up to the fact that we are going into the results season in India and that is not probably going to be something that we can cheer about. Plus, we will have the state elections and the political temperature will rise. All these things need to be factored in before we take a very bullish view too.
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