The Hindu Business Line : `Monsoon progress is the major factor for equities'

THE Budget will mean many things to many sectors and investors need to ascertain how it will impact the sectors they follow". Those innocuous words, spoken quietly by Mr S Sankaranarayanan, Fund Manager, Tata Mutual Fund, do not indicate the enormity of the weight he carries on his shoulders. The weight sits in the shape of the assets that the MF manages, including those that have come by way of new products such as Tata Equity P/E Fund.

Here, he shares his views on the possible after-effects of the Budget with respect to some of the key segments of the economy.

Excerpts:

What are the factors weighing on the equity market at this moment?

A few important issues may influence the shape of things to come as far as equities are concerned. These include a possible rise in crude oil prices and a hardening of interest rates. The state of the US market will also determine how the equity scenario develops in a country like ours. There has been some talk of a Chinese slowdown, a development that we need to monitor. The monsoon is here - its progress will be seen as a major factor as we go forward.

Are there any big domestic issues that investors should track?

You should look at such triggers as lowering of oil prices, stability in interest rates and good rainfall. These may well influence earning estimates for the future.

On another front, the market should closely watch the sectors that will be particularly affected by the Budget. There have been a host of significant announcements, some of which are quite relevant for key sectors like auto ancillaries, textiles and metals.

Elsewhere, FDI investment limits in some sectors have been raised. Among them is telecommunications, a move that will not be inconsequential for telecom companies. The FII ceiling on debt has been hiked. All this will be very significant for investors in the days ahead.

How do you view these sectors in the context of the Budget?

If you refer to, say, the textiles sector, this seems to be a rather favoured area. Budgetary provisions will have a positive impact on it. India has the raw material necessary for growth and the government too feels that textiles will advance in stature. Also, the quota regime will be phased out soon.

Or take the auto ancillary industry, which also stands to benefit. The issue of catering to global outsourcing needs will simply become more critical for Indian manufacturers in future. Of course, scale is a big consideration for this sector. However, a number of relatively small companies are set to emerge as larger players.

For cement, the Budget is only slightly positive. Cement companies will nevertheless gain from the government's focus on infrastructure, particularly from completion of irrigation projects and advances in rural housing. The Budget is nearly neutral for sectors like banking and commercial vehicles. It may hold negative impact for certain metals.

What about FMCG, which does not seem to be going anywhere?

Yes, the FMCG sector has not received too much attention from the market during the past few years. And this Budget does not have a lot of things going for it either. There is fierce competition among FMCG players already and we will have to see where such competition takes them.

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