V Balasubramanian, Head-Equity & Fund Manager–Equity & Gold, IDBI Asset Management, tells The Finapolis the Budget has laid a perfect platform to launch growth oriented policies
How do you assess the overall impact of the Budget going forward?
The Budget was a pragmatic exercise given the constraints the economy is facing. The 4.10% fiscal deficit target is tough but not an impossible one. Non-tax receipts may help achieve this. With oil prices expected to remain stable and with the expectation that inflation cools off in the coming days, we feel the Budget has laid a perfect platform to launch growth oriented policies and the government may be in a position not to tread on a cautious path, but can express its intent of growth aggressively in the next two years’ Budget.
What’s your sense of the economy under the new government? Which are the major sectors that you believe would pull up faster than the rest?
The economy is expected to grow in the years to come, though expectation of 5.8%-5.9% GDP growth this fiscal may be ambitious. Going by the policies and the intent of the government in the last 50 days of its existence, it appears that banking, automobiles, commodities and manufacturing and engineering sectors may grow faster in the next two-three years.
The latest Index of Industrial Production (IIP) data for May stood at 4.7% versus 3.4% month-on-month, highest since October 2012. Do you believe it is a sign of the economy bottoming out?
An element of base effect was built in to the IIP numbers reflecting its upward move, though the fact that the economy has bottomed out cannot be ruled out. It looks that with inflation and interest rates that have shown signs of peaking out and GDP on the verge of moving up, we can assume that economy is showing signs of bottoming out.
What’s your reading of the markets? Where do you think they are headed?
The market after a brief big move has stagnated with profit taking at higher levels pushing the indices down. When trades are driven by extreme one sided views, market always moves the other side. This is what has happened in the recent fall from the top. The market is consolidating and there is no major weakness, even if Nifty has to come to a level of 7200. It has the power to move northwards when the economy starts showing signs of green shoots.
Banking stocks have had a dream run so far this year, with most of them having risen between 20-60% year-to-date. Do you believe it’s time to book profits in these stocks?
The price-to-book value of most of PSU banks stocks went below 0.50 and this prompted a big move which resulted in a return of 20%-60%. With the economy expected to pick up, banking would be a major beneficiary of the growth in the economy. Also, banking and finance together have more than 25% weight in the major indices, and any movement in index is reflected in a big way in banking and finance.