The Hindu Business Line : `Be very cautious for next couple of months'

THE Budget will in all probabilities dampen sentiments... the market could well move sideways from here". That was Mr Rajat Prasad, MD of RR Financial Consultants, doing a quick assessment of the Finance Minister's latest exercise.

The New Delhi-based RR Financial has been in the thick of things recently, thanks to its involvement in debt mobilisation and distribution of financial products. In an interview with Business Line, Mr Prasad urges investors to be circumspect while making fresh allocations. Excerpts:

Now that the budgetary pronouncements have come, how should retail investors look at the market?

I would straightaway tell them to be very cautious, at least for the next couple of months or so. Investors may wait till the market has come off to, say, the level of 4,500 points before entering again.

I believe some quarters have already opted for safe strategies, a trend that is perhaps best evident in the realm of mutual funds, where investors have been going in for short-term options, especially liquid and floating rate funds. As for broad policy initiatives, investors need to look out for further signals on reforms. They would have to be aware of the general direction of the market so as to take the right calls.

The issue of transaction tax may prove to be serious...

Yes, this will be seen as detrimental to the market's interest. It has already hit the bond market, where players are viewing it as a bottleneck. Clearly, sections in the market think that it is on the higher side. Such an opinion can lead to an adverse impact on liquidity. In fact, if you take out the tax, the Budget can be easily described as `market-neutral'. But at the same time it has to be remembered that the government has tried to do away with long-term capital gains tax.

Aren't there any positive aspects?

The Budget has laid considerable emphasis on agriculture and creation of infrastructure, two areas that are extremely important for this country. I hope there would be lots of development activities all around, ones that require the kind of spending the government plans to ensure. It is clear that the government is being driven by the common minimum programme. Remember, the Economic Survey has also mentioned a number of constructive factors. The authorities, however, will do well to plug the leaks in the system.

Referring to specifics, let me say that the decisions to increase FDI limit in telecom and insurance are in tune with realities. Some telecom stocks are already showing signs of buoyancy. Unfortunately, you can't say the same thing for insurance, as there are no listed insurance entities in India.

How do you see the road ahead for MFs?

Well, the government plans to discourage dividend and bonus stripping. That may be seen as a positive measure for those who wish to stay invested for a decent length of time in order to secure maximum growth of capital. Those who used to take short-term calls, particularly for tax planning purposes, will have to consider new strategies.

With the Budget implying specific things to specific segments of the economy, we will have to see how equity funds behave in the days ahead. Stock selection will make a major difference to their performance.

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`Be very cautious for next couple of months'