See Rs 1.2 lk cr getting mobilised via IPOs, FPOs: JM Fin

Speaking on the Cabinet expansion undertaken by Prime Minister Narendra Modi, Atul Mehra, MD & Co-CEO, Investment Banking, said it was a necessary step and that the markets have already factored in the development.

JM Financial sees Rs 1.2 lakh crore getting mobilised from the market via IPOs and FPOs and feels divestment will be well-received if the government decides to go for it.

Below is the transcript of Manish Prasad and Atul Mehra's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: What is the mood out there? We are at all-time high, the index has already given record gains compared to any other index. When you invited various foreign institutional investors (FII) and other guests, what is the sense you are getting, will the market now want to wait for performance even a big giant like Larsen & Toubro (L&T) did not perform, is the FII community wanting to look for performance or are they willing to buy betting that the performance will come?Prasad: If you look at what IMF is talking about, if you look at the expectations for a softening global economy, of course US is the major island over there which seems to show a decent growth and the other one in possibly the emerging market space as well with China is taking a bit of a back seat there, India obviously the growth rates are kind of coming back, we are probably growing at about 5.5 percent, expect about 6.5 percent next year, you have a backdrop of a nice commodity sell-off led by crude and other hard commodities as well.Look at our inflation possibly kind of tapering back. So the sense that we get is that kind of investors coming into our conference, people are peering out way ahead than what possibly is in store for the next quarter or so. People aren’t focusing on the quarter, it is a kind of a structural move, the business confidence, consumer confidence is also slowly edging up, so investor confidence is quite with India.You may have quarterly numbers and a bit of kind of a small corrections but the trajectory is pretty well set. Having said that, you will obviously see some pullbacks, it maybe driven out of global macro, global QEs, that is fine but I think the trend at the policy level, macro level as well as the business confidence slowly and definitely is edging up. So we are seeing a pretty decent sense from investors as we engage with them through the next two-three days.

Sonia: What is the most likely scenario in your mind in the next six-twelve months? Do you expect a time wise consolidation in this market if we do get some signs of a pullback or do you think it could be a price wise correction?Prasad: My sense is if you saw the volatility in October as an instance in point just to indicate as to what is happening, there are only basically two markets that are hitting all time new highs, it is the US markets and India. So even if corrections do come about, I do not expect a steep price correction, consolidations can easily happen in a band of 10 percent, nothing taking away from that but those are in my opinion price points to get into the market place in India. You are looking at FY16 and FY17 growth rates coming about easing of interest rates possibly into Q1 of next year. I am talking about fiscal -- so by and large, I sense it is going to be a sideways move because of what you are seeing globally. I don’t think there is anything that is borne out of India. So I don’t see deep price corrections in India. 10 percent is a given, which you can see possibly in 7-8 days of a correction as well globally. So it is pretty synchronised in that sense in my opinion. I do not see a deep correction in terms of price because markets will held up, it is in a structural kind of a move heading into a multi-year kind of a rally building up because of the economic tailwind and backdrop.Latha: Any thoughts on the expansion of the ministry itself that was announced over the weekend?Prasad: What we are seeing and as a statement is maximum governance and minimum spread over there so yes expansion necessary because started out with the smaller set needs to percolate down.Mehra: I think right now the expansion, which has been announced was pretty much factored in. Some of the names announced on Sunday were pretty credible names. Market has given a thumbs up to that. We are seeing that in the market, these are all credible people, they come from a background where they have performed and they are not new to the economy, they have worked in the backdrop and we continue to believe that they will continue the good job, which has been done.

Latha: One area where investors have been miffed by the government’s performance is the absolute lack of any move to capitalise on this very pleasant phase in the market and divest, do you think the market will be able to absorb or the government will be able to go ahead successfully with that Rs 50,000-55,000 crore that it is expecting to garner, will the market give them that kind of money?Mehra: We at JM Financial -- picking up from what my colleague Manish Prasad said -- are very bullish and we are very hopeful that this year we will see about Rs 1,25,000 crore being mobilised from the capital markets. Up till now we have already seen some Rs 27,000-28,000 crore already being mobilised by corporates in various forms. As you rightly said the government of India through its divestment programme is planning around USD 9-10 billion of divestment. I do not know when will it happen, which one will happen first but I can tell you the mood is pretty optimistic. If they were to come out with a transaction, I have no doubt in my mind that these transactions will be very well received and you will see probably a record kind of a subscription pouring in for any and each of these divestment which happens.Third, I think the balance is going to be raised by the corporates over the next four-five months. So we are pretty confident that this Rs 1,25,000 crore is a target, which will be easily achieved. Having said that, I have two more points to make, one is that we are not seeing corporate India rush into raise large amount of money as opportunistic fund raising. We are not seeing that kind of move now. So probably it is still early days as the market stabilises, we will see more and more corporates coming and raise large amount of money.Secondly, interesting trend that we are seeing -- private equity investors who in past have invested significant amount of money in Indian markets are now slowly harvesting what they had invested and they are the largest supplier of paper today, which is why I am very confident that you will be able to see around Rs 1,25,000 crore being raised from the capital market this year.

Sonia: You speak to a lot of institutional investors, what is the sense you are getting about where the money is going in terms of individual sectors? To play the economic recovery, is there a lot of money flowing into cyclical pockets like capital goods, autos etc?Prasad: The sense that is over the past twelve months or moreso after May -- that has no doubt been a broad basing of investment dollars going across sectors, no doubt about that. But I still sense that given the bit of a drag on industrial production, bit of a drag on investment kind of going back into capex, capital good not showing the capacity utilisation still not at the optimal levels, money still percolating into the financial space into the pharmaceutical space, IT services remain to get their dollars you can see in terms of the sectors, which are also hitting new highs. It still is that, one needs to see the move from Reserve Bank of India (RBI) and I think RBI led by governor is doing a fantastic job in terms of attacking inflation as he calls it inflation and growth are connected at the heap. So he needs to see that kind of play out and only then can you see some investment dollars going in, cost of money has to come off a bit, need not necessarily be immediate though expectations are built up a little bit in my opinion but you are still seeing a percolation into the existing private sector banks, public sector banks, non-banking financial companies (NBFCs), pharmaceuticals, IT services, PSU, oil and gas space is seeing an inflow from investors given what we have seen in terms of dismantling of pricing deregulation in petrol, diesel, so you are seeing a broad basing, no doubt, midcap space is seeing broad basing but as yet I don’t think the capital goods space is seeing a major flow, it remains underweight in most portfolios and in my opinion until the credit cycle picks up one will not see a big boost on the capital space, you can see from stock performance as well -- nothing great over there.Latha: Since you alluded to this, there are two potential negatives for the market, it is very likely that the governor is not going to oblige with a rate cut in December, it is possible he may not do it in February as well but we have so much of data until then, it maybe a difficult call to take, as well the growth that we are expecting may not happen even in Q4 so even the results that come early April may not be very good. How much can these potentially jack this rally or at least prevent too much of further gains, December 2 for starters?Prasad: Interest rate moves of 25 bps here and there do not make the long-term business decisions to be frank. So I think a move not in December, not in February, still in my opinion okay the long-term 5-10 year business decisions or industries making those decisions are based on something different. Policy stability in terms of what the government talks about fiscal, taxation, many other things -- so those will be the predicaments in my opinion what will drive investments -- interest rates the focus on inflation is absolutely the critical thing and that should be the case and with that as you break the back of inflation, growth will automatically come back and people will not worry too much about the cost of money interest rates, they will taper off automatically. So in a sense you need to look back into the 70s and see what Volcker did in the US and that you can probably replicate, it has been too sticky in India for too long now needs to be broken down and then you have consumer confidence, you have business confidence, you have investments, the whole kind of virtuous circles starts spinning and we are getting to a Goldie locks kind of a scenario in India then.