ET NowIn a chat with ET Now, Sunil Singhania, CIO-Equity Investment, Reliance Mutual Fund shares his views on the economy and markets with a focus on Budget 2014. Excerpts:
ET Now: What are you expecting in the Budget today?
Sunil Singhania: We are looking at a longer term regulatory as well as systemic guidance and roadmap, rather than some tweaking here and there as far as the tax rates and so on are concerned. We are looking at a more progressive kind of a budget, which will bring the economy back on track. The sound bites that we are getting from the ministers in the government clearly points in this direction.
ET Now: Do you think expectation management will be the biggest challenge for the Finance Minister?
Sunil Singhania: More than the stock market, the fiscal condition of the country perhaps is something on which has his hands tied. We have had a few rough years of fiscal deficit, with the numbers being very high.
The revenue targets are very difficult to meet because the economy has slowed down quite significantly and you cannot expect tax collections to be very buoyant with a growth rate of 4-5 per cent. Thus, more than the stock markets and the expectations, the current fiscal situation is a challenge.
But everybody knows that and from hereon, the economy and the markets will be looking more at what is going to be the likely direction for the next three to four years.
This is the first budget of the new government and they have a full five years ahead of them. If they can lay down a systematic roadmap, correcting a few things on the way, then I do not think the market will be looking at too much of disappointment.
Post the Railway Budget, we have had a meaningful correction, specifically in a lot of stocks and that to some extent, has tapered off. The Finance Minister definitely has a challenge on his hands. But if they are able to give long term structural directions to bring the economy back on track, I do not think the market will be very disappointed.
ET Now: The quick money is already done with, but the easy money is yet to be made - not as much sectorally, but you’ve got to be more stock-specific and time the market right. What do you say?
Sunil Singhania: In the last five years, decent returns have been made in the equity markets. In the last one year, when some of our funds have given 100 per cent returns, there has been some correction of the underperformance that we have seen over the last three to four years. But having said that, I would say that we are fairly valued, if we consider the projections or the estimates based on the current economic scenario.
If we have some sort of a policy measure which brings the GDP back to 6-7 per cent - coupled with facts like oil prices getting back to $108, the monsoon reviving- there is a possibility that the earnings estimate, which we now see based on what has happened over the last two-three years, might start to get upgraded fast.
Also, equity markets are never linear - there will be periods when the markets will not give you returns and there will be other times when the markets will give much higher returns. Thus, this is a period where we should be optimistic.
Moreover, I feel that in the next four-five years, equity definitely looks like giving much higher returns than any other comparable asset class and it is going to be backed by earnings. Hence, we are not looking at a PE expansion of 24-25 times. Even with earnings growing at 15-17 per cent, there is a decent outlook as far equity returns are concerned.
ET Now: What are you expecting in the Budget today?
Sunil Singhania: We are looking at a longer term regulatory as well as systemic guidance and roadmap, rather than some tweaking here and there as far as the tax rates and so on are concerned. We are looking at a more progressive kind of a budget, which will bring the economy back on track. The sound bites that we are getting from the ministers in the government clearly points in this direction.
ET Now: Do you think expectation management will be the biggest challenge for the Finance Minister?
Sunil Singhania: More than the stock market, the fiscal condition of the country perhaps is something on which has his hands tied. We have had a few rough years of fiscal deficit, with the numbers being very high.
The revenue targets are very difficult to meet because the economy has slowed down quite significantly and you cannot expect tax collections to be very buoyant with a growth rate of 4-5 per cent. Thus, more than the stock markets and the expectations, the current fiscal situation is a challenge.
But everybody knows that and from hereon, the economy and the markets will be looking more at what is going to be the likely direction for the next three to four years.
This is the first budget of the new government and they have a full five years ahead of them. If they can lay down a systematic roadmap, correcting a few things on the way, then I do not think the market will be looking at too much of disappointment.
Post the Railway Budget, we have had a meaningful correction, specifically in a lot of stocks and that to some extent, has tapered off. The Finance Minister definitely has a challenge on his hands. But if they are able to give long term structural directions to bring the economy back on track, I do not think the market will be very disappointed.
ET Now: The quick money is already done with, but the easy money is yet to be made - not as much sectorally, but you’ve got to be more stock-specific and time the market right. What do you say?
Sunil Singhania: In the last five years, decent returns have been made in the equity markets. In the last one year, when some of our funds have given 100 per cent returns, there has been some correction of the underperformance that we have seen over the last three to four years. But having said that, I would say that we are fairly valued, if we consider the projections or the estimates based on the current economic scenario.
If we have some sort of a policy measure which brings the GDP back to 6-7 per cent - coupled with facts like oil prices getting back to $108, the monsoon reviving- there is a possibility that the earnings estimate, which we now see based on what has happened over the last two-three years, might start to get upgraded fast.
Also, equity markets are never linear - there will be periods when the markets will not give you returns and there will be other times when the markets will give much higher returns. Thus, this is a period where we should be optimistic.
Moreover, I feel that in the next four-five years, equity definitely looks like giving much higher returns than any other comparable asset class and it is going to be backed by earnings. Hence, we are not looking at a PE expansion of 24-25 times. Even with earnings growing at 15-17 per cent, there is a decent outlook as far equity returns are concerned.
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