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Last Updated : Feb 19, 2013 10:42 AM IST | Source: CNBC-TV18

Budget to focus on policy moves; investors buoyant: Kotak

S Ramesh, Joint MD, Kotak Investment Banking believes the upcoming Budget would be focusing more on directional moves at the fiscal side. According to him, these moves would ensure continuous foreign flows to the capital markets

S Ramesh, Joint MD, Kotak Investment Banking believes the upcoming Budget would be focusing more on directional moves at the fiscal side. According to him, that would ensure continuous foreign flows to the capital markets along with other policy initiatives related to the infrastructure and real estate sector.

Also read: Credible plans by govt may reduce fisc to 4.8%: Kotak

As far as the government's divestment agenda is concerned, Ramesh feels general investor interest is quite high. "Overall, on the disinvestment side, I remain quite optimistic that the investors will find many of the plays quite interesting to participate in," he noted.

Here is the edited transcript of the interview on CNBC-TV18.

Q: What is your expectation from the Budget this time around with respect to any stimulus for the capital markets? We understand that the Finance Minister may come out with easier norms for equity investments, removal of caps for Foreign Institutional Investor (FII) investments etc. specifically what would your expectations be and how much do you think it could move the needle of the market?

A: I would say the focus of the Budget, as a lot of people have been predicting this time, will be more on directional moves on the fiscal side. That I see as the primary focus. There are a couple of areas on the capital market side where I think there are expectations.

But, all in all I would say that for the flows to continue into the capital markets in India, people must be more focused on the directional moves on the fiscal and the other policy initiatives, particularly relating to the infrastructure sector and real estate sector. That is where investors would take cues from.

Q: What is your sense about the investor interest in the various disinvestment issues that are set to come in? You must have spoken to a bunch of them already this morning. Is interest still high and is there any sectoral or any other kind of preferences?

A: I have said this several times that in general, the government disinvestment programs pertain to strong profitable companies with great track record by and large. In general, the investor interest is high. If you look at the progress made till date there have been some outstanding successes out of this disinvestment program.

I personally remain quite optimistic about this and I want to call this a program, because it is a bunch of companies that will get disinvested. I think the investor interest is high and the whole game or the challenge is really in doing the road shows well, hearing the investors, getting their feedback on the pricing and just getting that right. I think that art is falling in place if you look at some of the recent transactions that have happened. Overall, on the disinvestment side, I remain quite optimistic that the investors will find many of the plays quite interesting to participate in.


Q: In your various road shows as well as your interaction today with your delegates, what are you getting as the key point they will watch in the Budget? Would a fiscal deficit of 4.8 or 5.3 percent for the current year keep their interest whetted or now is that completely discounted and are they looking for more or is there something quite other than fiscal deficit as well that they are transfixed on?

A: In general, one theme that we are getting from the investors is that there is a challenge that India as an economy is going through some of the counts that you mentioned. There is no one antidote that guarantees it can wash away this in one quick announcement. It is going to be a set of directional moves and the directional moves are well understood and known, but it is going to be reinforcement of some of that in the Budget that the investors expect.

Some of this is partially discounted, so it is more a conviction they will develop that going forward if they take the next three-four quarters, their moves put in place some of this to correct and start falling in place.

Q: After the National Thermal Power Corporation (NTPC) Offer For Sale (OFS) was successful, it became very tempting for people to paint the entire divestment calendar with the same brush because there is one argument in the market that the government is trying to push through a lot of cheap paper with low valuations, but the fundamentals continue to be quite dodgy for many of these companies. If you had to pinpoint for a retail investor which is the next slate of divestments that you are looking at, be it National Aluminium Company (NALCO), Steel Authority of India (SAIL), Minerals and Metals Trading Corporation (MMTC), which ones would be the most attractive in your mind?

A: I would frankly like to refrain from talking about a single company or a single stock, but I would like to pick up one theme that you talked about and that is, what is the method in this madness? I would just subscribe that the way this is being done now is more important just to listen to investor feedback and correlate that to the broad pricing. I think that is being done well.

That is why I said that I remain optimistic and please keep in mind that there is nothing like absolute pricing. In an OFS which the government is using to disinvest, it is pricing off the market and the markets are giving the valuation to many of these companies with its wisdom. So by and large, I think that is going well and the bunch of companies that they have put in place will get sequenced in some form which is logical.

That is why I feel optimistic that markets are broadly holding to where they are. A lot of this should get done.

Q: I do not know if this comes up in your conversation with foreign investors and you lock yourselves in discussions with them frequently, the Current Account Deficit (CAD) is actually at an alarming level, but look at the FII flows whether it is for divestment issues or whether it is for secondary markets the numbers are so healthy every single day. Is it that it is at the moment an academic issue and FIIs are not worried about this issue?

A: I think if you set the clock back by two quarters, when a set of initiatives got announced, no further tremors were felt in the global markets particularly in Europe and US which were fresh and new. There is a lot of liquidity in the world and there is a conviction that if you take a more broader perspective than just the short-term, particularly medium to long-term, there is growth available in India.

There is increasing conviction which is built over the last two quarters, particularly amongst foreign investors that India will take a set of necessary steps. There are short-term headwinds which need to be corrected. So it is with this conviction that we are seeing flows coming in and if you really ask me while currently they have taken into their stride the CAD and some of the other issues that you mentioned, I think they are coming into India in a bigger way given ample liquidity but, on hopes that over the next three-four quarters there will be decisive measures to see some of these getting corrected.

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First Published on Feb 18, 2013 03:57 pm
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