Budget 2012-13: Realistic targets, good for bond mkt, says Citi

Pankaj Vaish, head of markets (South Asia) at Citi spoke to CNBC-TV18 what the Budget has in store for the bond markets.

Below is the edited transcript of the interview. Also watch the accompanying video. Q: Bond yields have gone up to 8.4% plus thereabouts. What is the bond market making of the Budget and what does the macro take away in your book?
A: I think overall it is a good attempt. Given the political drama that took place; this is a kind of good realistic Budget that can be expected. The key is going to be can you deliver all these numbers a year from now. If we deliver 5.1% and if you were to cap subsidy at 2% I think people will be very happy. The bond market is also selling off because of the overall borrowing numbers were higher than expected. That was an event for the bond market all of last year and anything on the upside in terms of bond issuance is a concern. This will cause a little bit of a hiccup. However, if they can deliver all these numbers the market will be pleased with the outcome because at least we are headed in the right direction but to hit that 2% is very important and make sure that can be achieved. Q: You were feeling a little less buoyant about this market and ultimately it boils down to the fundamentals aside from what happens with the liquidity. Would you say from this Budget that there is less and less reason to feel fundamentally positive about the market over the course of next year? Should the market be less sanguine about either earnings growth performance or what happens on the margins?
A: I agree with you. We just have to stop expecting any big exciting bold things coming out of here reflecting the political realities so I agree this was an opportunity. I think in terms of trajectory at least it is headed in the right direction. But you are right it is back to fundamentals, it is back to where monetary policy is. I think we have broken away little bit away from global factors so correlation across the world has come off which is good. In fact you can see the euro is back down to 130 overnight but it is not meant dire situation for risk around the world. It is a little bit back to looking at our fundamentals, back to the tight liquidity situation within India. We have to see how monetary authorities address that. The fiscal side could have helped. I think they have done what they could give the political reality but yes, they could have been a little bolder, they could have big bang idea. If this 2% was laid out a little more concretely and with faith, you could have had the bond market celebrate. But obviously people had very low expectation that this will be nil. If this can be nil then I think it will be a good thing. There was a chance from the fiscal side but now it is back to reality and back to our remaining fundamentals.