How do you rate the Budget? I do not think the markets could have asked for anything better?
Absolutely. I think over the last many years, the macro has been handled very well and there were no other expectations from the Budget. We were very clear that there was not any scope for the government to do much except to bring down the fiscal deficit by 0.5% and give fillip to growth. That is what the budget has done at this point of time.
The real problem has always been that India has been a costly market. Over the last three to four months, India has been underperforming the world and if that continues for a few more months, maybe the market over-valuation problem will get over and that is the only challenge and it has not been the Budget.
The Budget has been well thought of as it has been over the last three years which is the reason we have not had an inflation problem or forex crisis or anything like that because the government has handled the macro very well including the Budget.
Your style has always been that of a contra investor. I am wondering what are the contra opportunities that you are finding in the current market given what the Budget has announced in terms of a thrust on capex, railways, and even defence?
Basically, the last few days gave us the opportunity to look at banks but then today the banks have been in a completely different camp and we do not think that the Budget is bad for pharma or something like that. We continue to think over the last four-five months. We have been telling people that it is a great asset class for some more time and therefore debt has continued to be a great contrarian asset class at least for some more time.
It remains a contrarian asset class at this point of time and we continue to think that the market should be volatile for some more time till the time the relative valuation of India becomes more comfortable. Part of it has already happened over the last four months. If you look at the way India has underperformed the other parts of the world over the last four months has been significant and once that happens, India goes back to that structural good story and from that point of time, it will be good. But currently, debt represents a good contrarian opportunity.
You made a very pertinent point. Is that a relative valuation, the only reason why we have seen an FII exodus from the India equities of late?
Actually yes. When we talk to all the foreign brokers who service many of these customers, who look at India and other parts of the world, people are not selling India because India has a problem. They are selling India because the other markets are too cheap and the level of underperformance of those markets against India has been stupendous. They have not been selling India because of anything. They have been buying the other markets because the other markets have become cheap.
It is important to recognise that it is not that there is a problem in India or something like that. That is not the reason and that is the reason why over a period of time, we have been telling people that India has to be systematically invested through SIPs because the problem is not in India. The problem has come out of the relative valuation of India versus the world and this Budget was not something that could have completely changed sentiment because the government has to do fiscal consolidation. They have to stimulate growth and that they have done. This is the reason why the immediate reaction has been positive but the Budget cannot change market valuations.
