Independent market expert Dhiraj Agarwal sees a high risk of correction post-Budget. According to him, the Nifty may even break 8000 support, slipping to 7500 level, if the Budget disappoints. However, on the upside he sees the index breaking 9000 on a satisfactory verdict.
The market needs public spending at this point, said Agarwal, adding that India looks solid from a 3-year horizon, but the investment cycle needs to pick up. He remains bullish on IT.
Below is the transcript of Dhiraj Agarwal’s interview with Latha Venkatesh & Reema Tendulkar on CNBC-TV18.
Latha: Do you think the markets have run way ahead and that after the Budget there is a bigger chance of disappointment?
A: The risk is quite high so typically market gives sometime to any new government, any new regime and new environment to take place. Market always has to discount the future so by definition it will move ahead of the fundamentals either improving or deteriorating so that is what is happening. Liquidity scenario has been excellent domestic mutual funds are getting inflows every month; nine consecutive month which I think is a record.
USD 8-9 billion as per what I read in the papers and the foreign institutional investor (FII) continue to pour money. So, that keeping the market up but at some point of time the ground level economy has to show improvements because it is still not improving. In fact if you see the last quarter results it looks like things have probably worsen a little bit at the margin as compared to two quarters is it lower and that is the risk. This is why this Budget becomes very critical.
Latha: Do you think there is a very big danger of both current year earnings and next years earning getting downgraded at the end of day after tomorrow?
A: I do not think people will react on earnings numbers after the Budget. As per my view what the economy needs from the Budget more than big bang reform statements or big bang we will do this, we will do that, the markets at this point need some public spending, Historically if you analyse investment cycle of any country in any cycle in any part of the decade or year the initial fillip always comes on government spending. Private investor follows the government investor. I worry little bit about this government’s obsession with fiscal deficit numbers and keeping the rating agencies happy. We need to loosen the purse string just a little bit. It does not require to completely let go but you need some governments spending to create the feel good that yes money is being spend, jobs are being created, investment cycle is restarted. Then you will see a flurry of private investments happen.
Latha: If the deficit announced is not 3.6 but say 3.8 or 4 percent you think the markets will not react negatively, will in fact react positively?
A: I think so, obviously the market will analyse where the additional money is going. If it is going into revenue expenditure it is a waste but if it is going into a capital expenditure it will be taken positively.
Latha: So higher fiscal deficit and a lower revenue deficit will be taken positive?
Reema: In case there is a status quo Budget, they adhere to all fiscal deficit targets and it is low on public spending how steep could the correction be from hereon and what will it take for the market rally to continue?
A: If the Budget disappoints we break 8,000 support and if we break 8,000 support we will be looking at 7,500 odd which is the next key sort of congestion level for the market in the last 8-9 months. If you broadly see this market post elections it has been in a range so first three months or four months of the new government the range was more like 7,500-8,500. The last 2-3 months the range looks more like 8,000-9,000 so the whole range has shifted vertically upwards but just 500 points.
If you also see the returns post the euphoric market rise just around the election time it is not really much. If I remember right on the Election Day itself the market touched about 7,700-7,800 or something or within a couple of weeks or after that. Today we are at 8,600 odd so it is not even 10 percent so it is a weak post election rally from that point of view. Most of the rally happened pre elections in the hope of elections. So stocks and sectors have gone all over the place. Few stocks and sectors have done well, few have done badly but at the Index level that euphoria is not there.
Latha: The advice for an investor at this point in time is to not rush in that there is a very good chance you will get better levels after the Budget?
A: I think so and incase the Budget does deliver then one can be looking at breaking the up end of the range which is 9,000. If that happens we are looking at 10,000 or 10,500. Even if you are slightly late there is still a lot of money to be made. However, if the Budget disappoints the down side will be deep this time.