Mkts okay with gradual rollback of stimulus: Religare MF

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In an interview with CNBC-TV18, Vetri Subramaniam, Head- Equity Funds at Religare Mutual Fund, spoke about his reading of the market and his outlook.

Below is a verbatim transcript of the interview. Also watch the video.

Q: You have been low on expectations from the Budget but does that mean that the outcome more likely be positive than negative?

A: This time around that is the case as the expectations have been much muted. There has not been too much news flow out of Delhi in terms of what may or may not be in the Budget. So in that sense, unless we get something, which is very bad or nasty shocks, I think except that there should not be too much to worry about. The key issues that the market is been sort of palpitating about which is a possible rollback of the fiscal stimulus. At some level a gradual roadmap for rollback is not something that the market will take too negatively.

The larger issue that one would like to see in this Budget is what sort of medium-term steps can we take towards fiscal consolidation and reduction of the fiscal deficit because one of the key challenges that we face today as compared to maybe 2003 or 2004 is the high level of interest rates in the economy even before the economy has actually hit full-fledge recovery track and the investment cycle is very weak. To my mind that is going to be the key issue to watch out for on this Budget.

Q: You were talking about the underperformance on autos. It seems 2% excise duty hike is okay-4% is not okay. Is that too facile an argument for the sector or are you cautious on it as well?

A: As far as autos are concerned, there was fairly high degree of over valuation sometime back but the stock have corrected now and some of them are down over the last three-four months so it is starting to look better value. I think as long as we get a gradual rollback of the earlier excise duty cuts, I do not think it will be too much to worry about.

The key issue for autos is also going to be the fact that they have to deal with raw material prices which have moved up already over the course of the last six months but when I look at it from an industry perspective almost very company that we look at in the sector is reporting margins which are close to the highest that they earlier had in fact some of them have recorded the best ever margins in their entire history. So I find it a little silly that they should be protesting so much about excise duty hike when they have such high margins.

They have the option if they chose to of observing some of the excise duty hikes and allowing the customer to buy the product at the same price given that they have such high margins. I think its little bit of a unnecessary debate.

Q: Do you think the Budget will change the contours of earnings of any sector whether its tobacco, auto, cement or oil in any major way? From an analyst perspective, do you think you won't need to tweak earnings and therefore fundamental forecast on any sector after the Budget speech?

A: Some of the sectors that you mentioned obviously if there is a very dramatic sort of change in the tax rate or tax structure there would be an impact on earnings. The industry adjusted to this quite rapidly. Therefore, when you look at earnings remember that at the end of the day we are buying the companies not just for this year's earnings but the earnings that they are likely to generate over the next four-five years. So when you look at it on that basis, I do not think the four-five year earnings stream will get affected all that dramatically. So this year's earnings could get affected. Over four-five year period, I do not think it changes too dramatically.