Delhi outcome won't result in friendly Budget: Geospehere

Q: Arvind Kejriwal is all set to become the next Chief Minister in Delhi, how do you think this event per se would have any impact on the market? How will the government react now and would it change anything at the Centre?

A: I don’t know the answer to that. I worry about the fact that there are a couple of pointers; you had the oil marketing companies (OMCs) suddenly drop prices last week which was somewhat unexpected.

A few months ago the regulator announced price increase on electricity prices, the local government - it was governor general - annul that decision so you have some regressive decisions by Bharatiya Janta Party (BJP) leading to the elections trying to set the stage for maybe a better outcome than turned out.

In the end clearly we are going to see some populism from Arvind Kejriwal’s AAP government in terms of trying to provide cheaper electricity and cheaper water and the problem with that is that if that is becoming an electoral model that other states follow then how will BJP counter it - it doesn’t have to be more populist.

I think you can paint somewhat negative picture which could have broader implications. I am not ready to paint that picture yet because I would like to see over the next few weeks - the oil marketing companies (OMCs) on February 15 will be making the next price decision.

I would like to see both petrol and diesel prices move up as quickly as it moved down as oil has rebounded and if that doesn’t happen it will be a bad signal.

Secondly, I would look from the Budget framework how they are thinking about presenting realistic numbers with some spending, which is needed and someway to balance the numbers without counting on gimmicks.

The most important point would be that some of the ordinances that need to be passed through Parliament and how the government could proceed with some of the tough steps that it is trying to take in terms of whether it is a mining issue or other issues or whether it is with regards to what they are doing with land acquisition and other issues.

So I think we would like to see more continued action and no getting weak-kneed at this point by the Prime Minister and the BJP government.

Q: What are you expecting from the Budget?

A: The Budgets in my opinion are not much important. It is more like a statement of intent of how the government sees the world.

I am not paying specific attention to what they are going to do to specific tax breaks, what are they going to do to encourage different investments but the question is - RBI and others have commented on this, what is the quality of the fiscal deficit reduction - is it counting on again unnecessary spending curbs or is the government going to be willing to continue to invest and control subsidies.

I am looking for a direction from the Budget in terms of clear vision on subsidies, clearer vision on government investment and emphasis on investment and emphasis on control of subsidies and over and above that maybe a framework, which will come from other things that come out of the legislative session, which will give - goods and services tax (GST) is an important thing but I am not sure this Budget is going to do anything other than talk about it. But those are important roadmaps and hopefully the Budget session becomes the statement of intent of what they want to do rather than the numbers themselves making any dramatic new promises.

I am less concerned about whether the deficit that they show is 3.5 percent or 4 percent, I am more concerned about how they get to those numbers and what are the components of that deficit and I think the quality of the Budget deficit and what is going for that will be more important.

Q: Coming on the market direction, the month of February has not been very kind to us but in general in the first half of this calendar year, what is the expectation on how will the Indian market perform given so many important cues?

A: I think you have had a couple of headwinds for the market lately. One is clearly that oil prices have rebounded a bit. Secondly, you have this AAP thing developing in slow motion over the last few weeks so it wasn’t just the exit poll results and I think there was some selling on that.

The earnings have been very disappointing, banks particularly have disappointed with the non-performing assets (NPA) issue not seeming to have been peaked yet and that has been the negative surprise.

There have been a few headwinds - the earnings will probably be the most important of them and the banks have sold off from that and today’s rebound is from an oversold condition but I think this is economic data remains ‘puzzlingly’ weak.

I would say puzzlingly because it has been a long time since this new government came in, inflation has come down, a lot of other positive things have happened in the backdrop and yet the good feeling is not translating into economic action.

If I were to advise the government, that is where I think they have to be concerned, they need to take action to make sure that whatever it is that is keeping businesses and consumer from spending which is getting the economy kick-started, whatever they can do to help kick-start that and I guess there are some good things that we hear that are in the offing.

Apparently the road side, the infrastructure side is about to kick off in a meaningful way but other things that can kick off would be helpful than jumpstarting the recovery.

Q: Now with this earning season, are you adding anything at all to your portfolio, are you a buyer now? If yes, in what?

A: I am a buyer on dips but I had got in a little more hedge a couple of weeks ago because I felt a lot of good news was in the market and I felt prudent to do that but I think the banking sector still remains interesting.

The one thing I worry about is the current oil price and the kind of assumption that oil prices are going to stay low for a long time, I think oil prices - the current rebound may not sustain.

Oil prices are likely to go lower before they go higher but in 12 months oil prices could be back at USD 75-80 per barrel and so, one of my concerns is how will the Budget be dealing with assumptions on subsidies related to oil and one of the concerns I have is India going to be using that old ant and grasshopper fable - is India going to be a grasshopper and ant in this period of getting this benefit from unusually and unsustainably low oil prices.

I think in the short-term India looks interesting and I buy individual names in sectors where I may like them and banks could be one of them, stocks related to commercial vehicle (CV) cycle which is likely to turn and even some infrastructure related companies if they sell off much would be interesting but the power sector is one that I think has been uninvestable for a while.

With AAP selection, that makes it even more troublesome whether or not it is going to be able to meaningfully reform the state electricity boards (SEBs) or the free power still is so attractive to voters that is going to be very hard to fix the fundamental problems of SEBs not charging enough to buy power even though there is power available.