S&P statement may not impact mkt negatively: StanChart Bank

Rating agency Standard and Poor's (S&P) has said that there is a significant chance of cutting India's credit rating in the future.

In an interview to CNBC-TV18, A Rajagopal, StanChart Bank says S&P’s statement may not have a serious negative impact on the market. "It is not a new point really. Market, in my view, has factored in the possibility. At the end of the day this is just a possibility, it is not a done thing," he adds. Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Q: Do you think, with the renewed statement, the investor sentiment towards India will get disturbed a bit or do you expect the FII flows to continue? A: It is not a new point really. I think this has definitely been there in investors mind. So, I don’t think this particular statement would have a serious negative impact on the market. Infact if you look at what the government has been doing recently, they have taken some very serious steps to address this particular concern. Obviously, this point has been there in the minds of investors. Q: What are your comments? You don’t expect significant FII impact, inspite of these statements. A: No. Market, in my view, has factored in the possibility. At the end of the day this is just a possibility, it is not a done thing. The government has taken certain decisive steps. That is why we have seen a significant rally in the market as well. That is one of the reasons why we have seen a significant rally. Q: How optimistic would you be on the divestment agenda of the government? A: Government disinvestment programme has been a pretty significant part of the capital raising in India in the past. In the last 10 years, in 2003, for example, I recollect the Maruti disinvestment was the one which really revived the market. When Coal India did its IPO, it was the best performing IPO for a very long time in India. So, government disinvestment has been an integral part of our capital raising. Many of these companies are well governed. They are typically large and very liquid floats. So, something around Rs 30,000 crore, which is the outside limit of the target for government, has been done in the past. So, I don’t see a reason why the government cannot raise significant sum of money from the disinvestment between now and end of this fiscal. Let’s not forget if you look back in 2004, government did about six disinvestments between the months of February and March including, at that point in time, the largest transaction ever out of India, ONGC. So, it is quite possible for the government to have pretty significant amounts raised from the disinvestment route. _PAGEBREAK_ Q: What are your comments on the two steps Mr Kelkar has outlined? He is speaking of an on-tap availability of equity shares like we have on-tap bond sales from RBI as well he speaks about and ETF of all the shares that are available with the government. Do you see any of these as feasible? Did they crop up in your discussions with the government? A: Both are pretty good ideas. I think in terms of the first one, which is having on-tap mechanism, the key is there to be very clear about what is the availability of shares. If, for example, in a particular company ‘X’ percentage is being disinvested then clearly that needs to be specified because then the market knows how much of the stock is going to come to the market. That should not be left open ended. It is something which investors can look at. But if my understanding of the proposal is correct, it is more like an option, it is called the Call Option Model. If the investors have the option to bid for at a particular price for a particular period of time, I think what needs to be taken into consideration is that till the investor actually exercises that option, the government doesn’t get to proceed. So, how does that fit in with the overall disinvestment? That is the key question around that. As far as the ETF model is concerned, government has said that they will administrate through an asset management company. So, it is going to then be driven more like a mutual fund rather than individual investors being asked to make an assessment on each of those stocks.