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Controlling the fiscal deficit by raising tax rates alone will negatively affect the market, says Vetri Subramaniam, head of equity funds at Religare Mutual Fund.
According to him, the government needs to change the macroeconomic direction, that is remove the resources from the consumption area and redirect it towards investment. “If the government is not able to move ahead in terms of taking those tough decisions, then the consumption space just continues to get supported,” he added.
Below is an edited transcript of his interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.
Q: What do you think it is going to be, a day where we end with a rally or a day where we end up with not much for the market?
A: Hard to say, but I think the market will just be happy that the event is out of the way at the end of the day. So let us hope there isn’t something very acutely negative.
I think the good news is that in a sense the expectations about this Budget are minimal or just sort of basic hygiene level expectations. Also, at some level the events of the recent days have toned down expectations that the government might do something very dramatic.
If Pranab Mukherjee delivers on some basic hygiene sort of measures, the market will be reasonably assuaged.
Q: A lot of people are pointing out that consumer maybe the space to watch this time around even though the thrust of performance has been with the rate sensitives. How would you play this portfolio wise?
A: In the context of the Budget, it is slightly tricky. If you look at it from the bigger picture, the essential sort of rebalancing that we need to carry out as an economy is in terms of our macroeconomic direction. That is we need to reduce the extent to which we have been sheltering consumers from the real world in terms of prices and the kind of subsidies and handouts that we have been giving. Then, those resources need to be redirected towards investment by making it available to industry and reducing the size of the government borrowing programme.
So when you think about it in that context, the macroeconomic direction that we need is to sort of remove the resources from the consumption area because that is proving to be fiscally unsustainable and redirecting it towards investment. The question is are you going to take the kind of decisions that need to be taken to implement this sort of a change in government support away from consumption and towards investment because it involves a lot of politically sensitive decisions. I think if the government is not able to move ahead in terms of taking those tough decisions, then the consumption space just continues to get supported.
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