Dinesh Thakkar, chairman and managing director of Angel Broking, believes the year ahead will be calmer than the one gone by. Edited excerpts of a conversion with Puneet Wadhwa:
How do you see the global equity markets, especially India, after the second round of the long-term refinancing option (LTRO)?
The size of the LTRO is positive for the markets, at least in the short term. Smaller banks, in particular, could use cheap loans to fund carry trades, boosting their short-term profit and enhancing further support to sovereign bond markets.
However, global markets gave up most of their gains after a short spurt, as the core message from the ECB (European Central Bank) and the US Federal Reserve (Fed) started distilling down. While liquidity conditions remain comfortable globally and investor sentiment is stable, the probability of runaway risk-on rallies across all risk assets is low, which explains the circumspect reaction of all equity markets post the LTRO.
Do you see the state election results having a deeper impact on the markets than what participants may be anticipating?
All states, barring Uttar Pradesh , may throw a clear winner without any impact on the functioning of the Centre. UP may throw a complex verdict, which might the compel status quo to be maintained at the Centre. This may deepen the interdependence of the UPA with some new allies, leading to a tacit understanding being reached on minimum common legislation. So, it would be a good idea to keep the bar of expectations low.
What is your investment strategy at the current levels?
Unlike FY12 which unravelled slowdown and crises on investors, FY13 promises to be more predictable. One needs to stay clear of sectors and stocks that are highly capital-intensive or have run up huge debt, as growth may well remain below the trend rate of eight per cent which guided the business models of such companies.
Banks will be the immediate beneficiaries of any reduction in rates. The information technology (IT) sector may have yet another steady year. Automobiles may see progressive improvement, while telecom and oil may gyrate to policy imperatives. Consumption themes may exhibit lower growth relative to last year, owing to rural slowdown. But, nevertheless, perform in line with the market.
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Are the rising crude oil prices a niggling worry at this stage?
They are a cause of worry, as they are reacting to tensions in the Middle East. The depreciating rupee is not helping matters and a current account deficit of 3.5 per cent for FY12 does not need more oil price shocks. Oil prices may dictate the direction of markets if they continue to stay at these elevated levels.
While the government has approved the proposal for expediting disinvestment through the buyback route, ONGC’s share auction received a lukewarm response. Your thoughts?
The markets are experiencing tight liquidity conditions owing to the seasonally weak financial year-end and large over-subscription to the MCX issue. More, ONGC was an incorrect choice for divestment to begin with. Since the IPO of Oil India in 2009, investors have been persistently trying to impress upon the government on the need for a stable subsidy sharing mechanism. In the absence of concerted action from the government, both ONGC and Oil India are trading at a discount to their regional peers.
Pricing of the issue is a moot point and does not really address the core issue of stable policy. If the finance ministry was compelled to adopt an ad hoc policy, it must have anticipated the investor response and not put up ONGC for divestment.
Do you expect divestment proceeds to fall short of the target?
The divestment target was Rs 40,000 crore. At the end of ONGC’s auction, the government has mobilised close to Rs 14,000 crore. It is highly unlikely that larger divestment efforts would be made or succeed, as the principal saviour, LIC, is already stretched in its equity exposure.
What are the chances that the Reserve Bank of India (RBI) will slash the cash reserve ratio (CRR) or key rates in the March policy review?
A CRR cut is very much on the anvil, owing to tight liquidity. The prospects for a token repo rate cut have dimmed due to the latest spurt in oil prices and inadequate pass-through of the combined impact of currency depreciation and oil price rises to the economy, which may nudge inflation a bit higher. While inflation is moderating, RBI may wait till the June quarter to start cutting rates, as it assess the government’s fiscal consolidation efforts.
What are your top three expectations from the Union Budget?
We would keenly follow the fiscal consolidation plan put forth by the government, as it would offer a peek into the minds of policy makers. A roadmap to other key legislation such as the Land Acquisition Act, Mining Bill and GST would be helpful to determine the Budget’s effectiveness.