Union Finance Minister Arun Jaitley will have to deliver a fantastic Budget this Saturday to enthuse the equity markets, Dinesh Thakkar, Chairman and Managing Director, Angel Broking, told BusinessLine in an exclusive interview. Anything less, he said, the market will find it difficult to maintain its present valuations. Edited excerpts:

What are the triggers needed to energise the markets?

The government must offer some incentives for new investments, encouraging more capital expenditure. When the government talks about ‘Make in India’, there must be some incentive for creating additional capacity in industry. Also, there is the question of how this capacity will be utilised. If you’re talking about the export market, the government must encourage more activity in this direction. Also, oil and commodity prices have gone down. Because of the fall in oil, the government has a corpus of ₹1 lakh crore (in subsidy savings). Using this buffer, the Modi government can maintain 4.2 per cent of fiscal deficit to get tangible results.

You talk about increasing capex, but it will take a while for capital expansion to start again, considering that industry is now running at excess capacity. How long will this delay be?

The investment cycle will take a maximum of two years to start again. Corporates don’t wait to run on 100 per cent capex before planning to invest (to meet future demand). If the Budget indicates that the government is sincere about working through investment hurdles, investment will begin soon.

Do you agree with RBI Governor Rajan’s plan to hold interest rates?

Not fully. I think he was being over-conservative. But our inflation (trend) is very cyclical, very volatile. So I understand his caution. We’ve seen this happen before. So, it makes sense to wait for a few quarters before raising interest rates again.

How do you think the market will react on Budget day? What kind of Budget will really enthuse the markets?

Even an above-average (Budget) would leave the markets disappointed. A fantastic Budget is needed to take the markets to new highs. Currently, market valuations are at 17 times of future earnings. Historically, India has been stable at 15-16 times. For the market to hold at 17 times, it requires something very positive, like a growth scenario (the promises) of 6-6.5 per cent increase in GDP. It has to be something really good.

Do you see the government giving incentives for investment in the capital market?

Only growth will bring investors back to equity. A reduction in interest rates on risk-free assets is the indirect way to bring people into capital markets, (only then will) investors take a chance on riskier assets. Look at other asset classes: real estate won’t go up, I’m not expecting gold go up either, and commodities will take time. The only asset class where investors can see growth is equity.

Related Topics
comment COMMENT NOW