FIIs glued to India not Europe or we'd be at 4500: PN Vijay

The expectation from the market is that if Manmohan Singh takes up the Finance Minister portfolio then perhaps it’s a good thing, if new allies come into the coalition, then perhaps the TMC will be sidelined and maybe all of those reforms that were stalled up until now could come through.

Portfolio Manager PN Vijay finds that there is this mood of high expectancy in the Capital over the last two days that Manmohan Singh has now got the green signal to do something very rapid in the next 10-15 days and that there is some sort of a calibrated approach.

The CWC met yesterday, bidding goodbye to Pranab Mukherjee who resigned today and the Prime Minister will take temporary charge and try to run things with Dr C Rangarajan and Montek Singh Ahluwalia so there is a mood of huge expectancy. Vijay says the big rumour going around is that some sort of voluntary disclosure, amnesty scheme for money stashed away abroad is being talked about.

There are big expectations which people have been hearing about and on which expectations are high that in the next 10 days - voluntary disclosure scheme for black-money held abroad, big bang FDI in retail, getting Mulayam Singh organized while Mamata will be told if she doesn’t like it to leave etc may happen. “How much of this is wishful thinking I don’t know but there is a mood of very great expectancy in the Capital,” he adds.

Below is an edited transcript of his interview to CNBC-TV18. Watch the accompanying videos for more.

Q: The measures which were undertaken by the RBI yesterday were pretty much a damp squib for the currency market. What did you think of the measures? What sort of effect do you think it would possibly have over a medium or long-term?

A: They were not policy, they were tactical, and were on the ground. Policy means changing the way things are done; this is incremental and tactical to remove volatility etc. People are so excited about what is happening in Spanish bonds, nobody talks about Indian yields coming off from 8.9% to 8%, which is a fantastic thing. They are very quiet about Indian yields but not about Spanish yields.

I am a bit stupefied by this infatuation with Europe. One should just concentrate on India which is what the FIIs are doing and who are not bothered about Europe. They are looking at India totally differently otherwise India would be at 4,500 on the Nifty now. What the RBI did was not policy; the policy action has to come from the government. So, fiscal deficit, reforms, FDI etc.

I don’t think we should look at the RBI. What can the RBI do? Unless they clamp down controls on foreign exchange and remove the rupee from free float, they cannot do much. It is Delhi which has to get its act together.

Q: The other trigger is Europe and the EU Summit which kicks off on Thursday. What is your expectation? What sort of ripple effect do you think that our market could be working with?

A: Fortunately, the expectation from the EU Summit is very low. The way Europe sold-off on Friday and then again yesterday means they are expecting Merkel to continue to stonewall. Except for Netherlands, Finland and Germany, the rest of Europe are lined up against her to allow one of two things - a growth compact for about 110 billion euro and secondly a statement that directly Spanish banks will be funded to the extent of 65-100 billion euro. Now that’s the expectation.

How much Merkel will succumb to G20 and EU forces right from Obama down to everybody else remains to be seen. I think she will wilt on the Spanish banks because there is no great policy involved also on fiscal growth compact also she may agree. But on sort of unified debt she will push for a fiscal union and as they said that one of the ministers in the Greek cabinet is an ex-Nazi victim, so you can’t expect such people to sign off on a document that says Germany shall rule Europe again.

I think the fiscal union which she is looking for is a little bit grandiose and reminiscent of Hitler, but it’s all going to happen out there. If they do the Spanish bit also I am very happy. I think the market will also be heaving a sigh of relief.