Budget addresses BJP’s voters but ignores capex: Subramaniam

The interim budget has reduced the uncertainty regarding NDA government coming back to power, Sunil Subramaniam, MD & CEO, Sundaram Mutual, tells ET Now. Edited excerpts: ET Now: There was something for all in this budget but from a market perspective, what would you say is the key takeaway because there is definitely that fillip to consumption and housing. He has given more money in your hands and of course direct benefits in case you want a second home?Sunil Subramaniam: From the market perspective, there are two things; in the medium term, earnings across all these sectors would get a boost because of the budget impact. There would be more income, more consumer durable purchases and but more importantly, the market had an uncertainty discount around the ability of BJP to come back to power. What this Budget has done in my mind is it has reduced that uncertainty factor and that premium.I expect overall valuations without that premium to actually lift the market because of the continuity factor. The government, over the last four years, has done a lot of work on infrastructure, roads and all of that but he needs to complete the work. There is an uncertainty in the market that if a different kind of government comes to power, they could roll back the reforms and that could prove to be a set-back for the economy. The mid-term election results had made the market apprehensive that Mr Modi may not be able to use this vote on account to get back some of the vote bank that he had lost.Piyush Goyal has done a brilliant job because he has addressed the unorganised labour segment which is poor. He has addressed the rural population and he has addressed the middle class through tax break. That should give confidence about the possibility of the NDA government coming back to power.ET Now: So you are saying that this budget speech has ensured that there will be a victory later this year?Sunil Subramaniam: That is a very strong statement. It has reduced the uncertainty. To say that they will win is not right because a large part of the population does not follow the budget. It has to be seen how this is communicated by the BJP at the hustings.ET Now: Who is to say that tomorrow Congress and its manifesto does not come out with promises as they have with the UBI? I do not know how it puts one in an advantageous position versus the other because promises will be made across the board in the runup to the elections. BJP used this forum to articulate their vision but other parties will come out with their pitch?Sunil Subramaniam: Yes you will but it is the credibility factor. The government had introduced a lot of pain through demonetisation. The very absence of those negatives from a budget perspective will be a help as also the fact that a government in power always has the capacity to start implementing. They have back dated the agri package from December 1, 2018 and so Rs 20,000 crore actually gets distributed in cash. That is hard cash and not a promise. That is one thing. Second, it is market perception and market plays on perception. See FIIs would also like to see continuity whether you and I like it or not.ET Now: Yes everyone likes consistency….Sunil Subramaniam: Not just consistency, Mr Modi.ET Now: And market hates change.Sunil Subramaniam: Yes and they like Mr Modi. To the extent that they have an uncertainty premium around India and this is an election year. Let us say earlier they were 50% not sure, today they will be 60-70% sure…ET Now: But will this certainty around policy consistency be associated only with Prime Minister Modi coming back or if the NDA comes back with another prime minister?Sunil Subramaniam: I think that is a million dollar question. From FII perspective, I would say Modi is important. I think clearly he has been the chief marketing officer of India Inc. You have to consider that continuity of Mr Modi is an important factor.ET Now: Now one event is behind us. We can already see the market absorbing that. How critical is it given that next week on Thursday you have the RBI policy. Will RBI now cut rates because the bond market is already reacting in a fashion and absorbing the budget outcome?Sunil Subramaniam: The bond market is factoring in the projected government expenditure increase and the financing. The RBI governor has multiple factors to take into account. So what does he take into account -- projected government’s borrowing programme, expected crude prices, expected food prices and their affect on inflation and the growth in the economy?The market had thought there would be a rate cut coming up in the RBI policy. What the market is saying now is that it is going to be a pause rather than cut because Mr Shaktikanta Das has to factor in this new fiscal math of borrowing. So what is he going to do? The market is uncertain but the commentary of the RBI, even without a rate cut will be tilted towards supportive. I expect the bond markets to bounce back.ET Now: There are clearly sops announced for autos, consumption will get a boost and banks are going to benefit from a couple of announcements. But the biggest fillip has come in for the down-and-out real estate sector. Do you think investors can now look at real estate from an investment perspective or is it at best a short-term trade?Sunil Subramaniam: A significant rerating will happen to the real estate sector because it has been on the receiving end of a lot of bad news like RERA) and the fact that affordable housing helped only those people with empty parcels of land.This Budget says that the government is looking positively at housing. This little bit of good news will bring cheer. I would say valuations will creep up but it would be very stock specific and not buying the real estate index. The second aspect of it is that ultimately financing is very critical. One of the things which is still negative from sector perspective is the absence of NFBCs, HFCs which are able to lend. While tier-1 NBFCs are doing alright, tier-2, tier-3 NBFCs have seen tightening of their yields in borrowing as well as unavailability of money. That also has to get freed up if the sector is to truly bounce back. Without financing, you cannot buy a house. Credit from NBFC sector has dried up because even part projects which they had released have stopped.ET Now: What is your closing comment?Sunil Subramaniam: The key positive take away from this is that the finance minister has done a very good job of addressing the vote bank and hence for me, the continuity of this government’s policies in is the biggest support to earnings growth.ET Now: What is the bad news?Sunil Subramaniam: The bad news is that fiscal math for the next year does not truly add up and they have completely cut out capex. The have kept fiscal deficit at 3.4%. When the proper budget comes and normal capex comes in, will 3.4% be sustainable? That is the grey area. 67794858 67793775 67792522

from Economic Times http://bit.ly/2HJ5z4T