10:30 August 28, 2009
What do you think of the sharp negative reaction to the Budget?
The UPA stuck to its inclusive growth agenda and goodies were dished out for infrastructure and export-related sectors. The market reaction seemed to suggest that the Budget was a poor one. While we agree that a lot could have been done, the market reaction made the Budget appear worse than it actually was. Such a sharp negative reaction can take place when expectations run sky high. Certain stocks had run up by over 50 per cent in 10-12 trading sessions before the budget. History teaches us that irrational expectations are bound to be met with disappointment.
The market would have probably given this Budget a thumbs up, if the Budget Speech was packaged and delivered better. All that the Finance Minister had to possibly do was to give out specifics on FDI, disinvestment and indicate a time frame for return to FRBM. The rest of the speech could have remained as it was and we would have probably seen an upmove on the Nifty on Budget day.
What is your current market strategy, has it changed?
The market direction has turned negative with FIIs turning net sellers and technical indicators suggesting a further downside in many stocks (especially index scrips). The strategy will be to hold on to my current picks in the portfolio. With adequate cash levels at 60 per cent of portfolio value, I will look at reducing cash levels soon.
What's good for investments now?
Consumption-linked stocks are good for investment given the big jump in rural spend and the second tranche of credit of pay arrears. Over and above the fiscal stimuli, removal of the 10 per cent surcharge for individual tax payers and widening of income tax slabs will add to the consumption effect.
Infrastructure should continue to do well with large increase in allocations to key flagship programmes like Bharat Nirman, JNNURM and accelerated irrigation and greater flexibility given to IIFCL.
How should one approach mid-caps and small-caps?
Under no circumstance would I advocate putting a huge chunk in a single stock, no matter how good it appears. There is no denying the fact that mid-caps are needed for superior portfolio returns. Though some of these small companies may provide abnormal returns, many or most may not deliver and fade away in the years to come.
Are we in a bull or bear market?
We are at crossroads. India is in a fundamentally strong position and will continue to grow at a faster pace than most other economies. However, it does rely on the US for a major chunk of capital in the form of FDI and FII. It is for the government to push reforms at a face pace and increase the rate of growth. Concern areas are global meltdown, poor Monsoon and India's rising fiscal deficit. Therefore, it appears difficult to touch the Sensex highs of 21,000 in the foreseeable future. At the same time the chances of revisiting October 2008 lows are also ruled out. To put it simply, Indian equities will outperform global peers.
Your advice to investors?
It would be premature to write-off the Budget and go underweight on equities. We see no reason why the reform process will halt. It may appear to be moving at a slow pace for now, but we expect the next Budget to be a more bold and 'big bang' one. Use the lull in the market to identify quality stocks and build positions gradually on every slide.