Govt must hike fuel-prices; de-allocation not easy:Auroch

Raj Majumder of Auroch Investment Managers explains to CNBC-TV18 that the market is on the defensive, the government has to hike fuel prices immediately and the de-allocation process will not be as easy as imagined as most defaulting companies may have legally sound reasons and could initiate legal action.

Below is the edited transcript of the analysis on CNBC-TV18. Q: What is the prognosis of what the rest of the month may have in store for the markets?
A: I think most of what we have been seeing is extremely liquidity-fueled. My personal take on the Fed date today is that it is not very positive. There might be some extension of this easy liquidity till 2015.
We are not expecting an unlimited kind of QE that the market is pricing in. If you interpret that in the context of the fundamentals, it does not paint a pretty picture since both the CBOE VIX as well as India VIX are at a multi-month low.
So there is complacency in the market and most market participants are expecting the liquidity party to continue. And whenever that party ends, there will be a bout of profit-taking.
Our view is that the market is in a state where it cannot be pushed around. It has retreated to defensive positions with the auto sector losing luster, IT staging a bounce-back, pharma continuing to do well and a caveat-filled FMCG sector going strong.
So the market is in no position to allow investors to step out too much and take a highly contrarian view. But in the next couple of months, the RBI along with some of the larger central banks, will be forced to move with a substantial amount of liquidity and that is when we can expect to see the next cycle begin. Q: What is the likelihood of an upward revision of fuel prices?
A: The revision of fuel prices might be initiated through the GDP data for the last quarter; it is already at 8.1%. If that continues even a GDP above 6-6.5% is most certainly going to ensure a downgrade and that is something that neither the government nor the central bank is looking forward to.
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I think there will be a rise in fuel prices, especially in that of diesel, but the hike will be about Rs 3-4 and stop short of Rs 7. Though the government was able to postpone the hike thanks to lower Brent crude, the additional liquidity has removed the element of comfort. So, on the deficit as well as on the crude pricing side, there is not much headroom for the government. It has to move now. Q: What is your view on the entire coal block de-allocation issue and do you hold any particular view on JSPL and Tata Power?
A: I think this is just the beginning of the road. The process of de-allocation will drag on for a much longer time and a lot of these companies will get de-allocated, but it is not going to be easy.
Though some of these companies haven't made the kind of progress that had been committed to, they may have legally sound reasons for the delay due to the environmental and other state-level clearances.
The valuations of quite a few of companies will take a knock because these companies are quite active in the merchant power business as well.