Budget 2012 will be good for market: Sanjay Sinha

Sanjay Sinha, Founder, Citrus Advisors told NDTV Profit that he is optimistic on the upcoming budget. He feels that the Nifty will take cues from the budget and rally even further.

“There is consensus view that interest rates have peaked out and hence, rates are going to go down. The environment is turning more positive and optimistic for FIIs. The budget will be good for the market,” he said.

Below is the complete interview. Also watch the accompanying video.

Where do you stand now on the run up you have had?
 

The part of the run up we have had till now is just correcting the extreme pessimism that had set into the stocks of sectors like power and infrastructure. 

If I look at the entire 2012, there is some more steam left as far as the infrastructure stocks are concerned. Given the fact that we have seen a fairly strong rally in the overall market, particularly in these sectors, there will obviously be a temptation to book some profits and then the stocks and the sectors will react also to the events that unfold before us. We cannot forget that when we ended 2011, it was with a lot of pessimism as far as the policy paralysis on the government front was concerned. 

The year 2012 has been quite refreshing because even though we have not seen any significant policy getting announced, we have seen a lot of work happening, leading to the policy announcements. 

The budget is going to be a major policy announcement, which is coming in the next month. So, I’m optimistic that these stocks in the infrastructure sector may actually see more positive news coming their way. It will also get supported with lot of water flows coming their way, which will push them upwards.

There has been rotation across sectors, right?
 

Not exactly, because a lot of new money that has come in the market. One of the most spectacular numbers that we have is in terms of the FII flows, which is now in the excess of $4.5 billion in a span of just a month and a half. At the same time, if you have been tracking the local retail participation in the cash segment, then that number is also climbing up now. 

So it is not just the money which is rotating from the one sector to the other, the money that was sitting outside of the equity as an asset class, is now coming into equity and is firing up lots of stock prices across sectors. 

There has been acquisition and blame towards the kind of money that has come so far and the trouble is that money has gone to all the markets. Everything has done well so far this year. Are these funds which differentiate one sector from the other, or this is ETF kind of money, etc?
 

I wish I had the perfect information on what has been the profile of the money that has come from the FIIs. But if you go by the historical evidence, it is not that the ETF money is coming into India for the first time. It has come in the past also. But has that money been almost 80-90 per cent of the inflows, no, that has not been the case. The characteristic of the ETF flow has been that it comes in a big rush and goes out in a big rush.  

It is equally important to note that when the money has come, it has come more as an allocation to the country and when it has gone out, it has gone out as more of an allocation outside the country. If the same phenomenon is going to replay now, then the money which is coming in, may have a 15 per cent proposition of the ETFs, which have come in. 

The big question is whether the India story has played out completely or not. In that background I would say that, if you look at 2011, there was a fair amount of disappointment with the way the reforms were done. The interest rate cycle was on the way up. If you look at 2012, we possibly have a reason to be optimistic on what the budget 2012 will have vis-a-vis what the finances of 2012 have been. 

There is consensus view that interest rates have peaked out and therefore, the rates are going to go down. So, if in that pessimistic background, if you look at 2011, all the FIIs took out Rs 4,500 crore net from the country. 

The environment is turning more positive and optimistic for FIIs, then why should this money stop at $4.5 billion, it should be much more than that.

So, what would act as a big speed-breaker to this very good run that we have seen so far this year?
 

We have to accept one thing that after almost 4-5 years; the government has started to matter quite a lot as far as the markets are concerned. If you look at the performance of the market in 3-4 years, it has been largely supported by the corporate performances and not so much by the policy action of the government. In 2012, we will have to depend a lot on the positive signals, which are going to come from the government and therefore, the budget cannot in isolation capture and bring all the reforms. 

It cannot capture the entire policy document of the government. But in the near future, it is the most significant policy statement from the government. And there are reasons for that. There is a possibility that the government might roll back the excise and service tax rates to where they were in the 2008 before the crisis hit the world. 

If that happens, then the excise duty rates and service tax rates will go up, the knee jerk reaction would be negative, but then from the macroeconomic perspective, it will be a fairly strong measure by the government. Hence, we might have run up in expectation that budget will be good for the market overall and you will have a kneejerk reaction post the budget, where there could be some profit which will be taken off the table with the excuse that there is a hike in the excise duty and service tax. 

But after that when I see a more enduring rally beginning to build up, then it is quite possible that we may revisit the previous high of the market.