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There will be a great deal of continuity regardless of who becomes FM: Saurabh Mukherjea

"NDA-2 must take note of funds crunch as it could become a big trigger dragging down Q1 earnings."

ET Now|
Updated: May 31, 2019, 10.35 AM IST
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Between RBI, SEBI and finance ministry, we are hoping to see a slew of reforms which infuses confidence, money, liquidity and finance back into the money market in Mumbai and from there into the broader economy, said Saurabh Mukherjea, Founder, Marcellus Investment Managers, in an interview with ETNOW.

Edited excerpts:

People are speculating whether Amit Shah is going to be the new finance minister or not. Is that the buzz in Delhi too?
Absolutely, this is a city which thrives on power politics and when you are forming the cabinet of the world’s largest democracy, you can almost feel the power in the air. What we have seen yesterday is that there is going to be a great deal of continuity in the government. Most of the senior faces who were there in the previous administration are there in the current cabinet too and so there will be a great deal of continuity regardless of who is the finance minister.

Why is there so much of speculation? Why are markets so curious?
I suppose Arun Jaitley pulling out of the race, to some extent, has set the cat amongst the pigeons. The familiar figure for Mumbai is Piyush Goyal but there is a degree of speculation as to who would or would not be the finance minister. So, let us see how the day pans out.

What I was getting is regardless of who becomes the FM, the real politik behind how the finance ministry is run, the style and the template will be very similar because regardless of who was the finance minister, the notable thing about the Narendra Modi government is the degree of central control. So, regardless of who is the specific holder of the FM portfolio, we will see a great deal of continuity in the way the finance ministry portfolio has been managed.

The election is out of the way, crude oil prices are on our side, while earnings continue to be still a bit jittery. What course of action is going to be there for the markets? What is going to be on top of mind?
The way human psychology works, every time a major positive event happens such as the NDA’s landslide victory or say even a negative event such as say an airline crash, the human mind exaggerates the importance of it and you can see that there is an immediate hope trade after the election results.

That said the government will transform the economy, the stock markets, bond markets, the currency respond to it and then over the course of the subsequent weeks and months, the market comes to realise that things will be pretty much where they were three or six months ago. We will go through a similar cycle again. We are all human beings and it is but natural to believe that after such a big landslide victory, the NDA will transform things. And you can see that euphoria sweeping through the bond markets, the currency market and the stock market,

But the reckoning is, over the next two-three months, we will get back to a degree of normal service when we come back to reality and back to realising that much of the same challenges that have plagued the country over the last five, 10 years, are not just going to disappear into thin air.

Amit Shah is the buzzword all across. Do you think the markets would like it if he is chosen as the finance minister?
The markets are fairly un-sentimental about these things. What the market is looking for is a finance minister who comes, gives say a minor relief to the stock market in the form of say relaxation of STT, does not hike capital gains tax, does not bring in an estate duty tax etc. I do not think the market is that fussed about personalities. My reckoning is given how centralised the command and control system of the Narendra Modi government is, I do not think the market will set great store by who exactly is the specific personality. They will look for a relatively market friendly finance minister.

And in that regard, there is no reason to believe Amit Shah will be a choice that will worry the markets. The markets understand that this is a government where the leader calls the shots to a great extent and hence whether it is Piyush Goyal or Amit Shah, the market will take it in its strides and move forward and look to the budget in July and see how the new government performs in its budgetary outing.

Now that we are pretty much done with Q4 earnings report card, has there been any surprise -- some inherent strength or even major disappointments?
I have to confess that there is a degree of surprise here for us, what we are seeing is we knew about the NBFC issues, we have been talking about it on your channel for a good two years now, the growing crisis in the NBFC ecosystem. What we are seeing -- and it surprised us to some extent -- is even well run companies like Havells or Page Industries or an Paints, are channelling financing challenges in different parts of the economy and talking to distributors and dealers over the last couple of weeks.

It is relatively clear that that funding crunch which is impacting NBFCs is impacting a broad swath of the economy. So obviously car, truck and bike sales are down but even more generally, the funding crunch is being felt in many other sectors of the economy.

We could see the impact of that in Q4 earnings of say a Page or a Havells. I am not so sure this can be wished away in 90 days just because the NDA has had a landslide victory but some of us are looking to see what sort of tangible steps will be taken by the new government to deal with this funding crunch.

Oil coming off is just divine for India as this gives the RBI room to cut and I hope the RBI cuts quite aggressively. I would love to see a 50 bps rate cut as the RBI has to pump more liquidity into the system and then between Delhi and Mumbai, between RBI, SEBI and finance ministry, we are hoping to see a slew of reforms which infuses confidence, money, liquidity and finance back into the money market in Mumbai and from there into the broader economy.

That is the big trigger that we need to watch carefully. If it escalates further, it will drag down Q1 earnings quite meaningfully.

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