Mkt will take 5.5% fiscal deficit no positively: Madhu Kela

Madhu Kela, Head Equity Investments, Reliance Mutual Fund says Budget may surprise positively. “Market will take 5.5% fiscal deficit number positively.”

Kela feels excise duty hike will not significantly impact the auto industry. ”Will look for higher disinvestment number from government.”

Here is a verbatim transcript of an exclusive interview with Madhu Kela on CNBC-TV18.

Q: Most of the times we dont see a post-Budget sell-off, do you think it is likely this time around?
A: I am happy we are seeing some pre-Budget sell-off this time. The market undertone is like what it is today. Then there are chances that post-Budget market will look up rather than selling off.

Q: Do you think that the market has already priced in or is going in with very low expectations therefore the chances of a relief rally are higher going forward?
A: Budget proves to be a non-event in a matter of three-five days. Market at a point was overvalued. It needed some chance to correction. If the market corrects 15-20% from the peak and if we go into the Budget after that, Budget may positively surprise people this time.

Q: For this Budget how central is this fiscal deficit issue? What would the market ideally like to hear on the fiscal deficit front?
A: The market would focus on the absolute number which the government will come up with. The market will focus on the roadmap and the body language of the FM as to how to fiscal deficit will get controlled over the next 12-24 months. For a macro-institutional, this is a very big thing. They will continue to watch.

Q: What is the number that the market would be happy with?
A: If the number is 5.5% or so, the market will take it positively.

Q: Would it want to see a concrete roadmap on how this is to be achieved instead of just a promise?
A: Yes, the market would like to see a concrete roadmap. Based on the roadmap that is proposed, the analysis will be done on whether it is achievable or not and people would like to take a view post that.

Q: Do you have a number in mind and would the market like to hear specific names of large companies?
A: I think that has already come. In the last 10-15 days, government has been very proactive. They have already given lists of companies that they would like to disinvest. It is not very difficult to estimate a number. I would not like to hazard a guess. However, I would like to see a much higher number. Given their own plan, what they have spoken in the last two months, these are the companies that will disinvest. I think it is a significantly large number.

Q: From an earnings perspective, the assumptions are that through FY11 the earnings will grow at a robust pace. The risk to that is withdrawal of stimulus and how it would affect some of the companies that have benefited from it. In the Budget, are those company earnings at risk at all?
A: Maybe marginally at risk. If you look at auto sector, the EBITDA margins have expanded from 12% to 20%. If the stimulus is withdrawn and if there is a compromise of 1-2% on EBITDA margins, then I don’t think it significantly changes the course of earnings for these companies. Markets have been anticipating this. These stocks have been underperformers for the last three-four months.

Q: Hero Honda management said that the growth would go to single digits if this stimulus is withdrawn, would you go with that argument for a sector like autos?
A: My hunch is that it is not linked to 1-2% price increase or decrease. The volume growth is linked to the overall feel good factor. The government will be sensible enough because they know that this recovery has happened. I do not expect them to go that far so that the fundamental recovery will be at risk.

Q: Do you see any major direct tax changes? In the US budget we have seen things like capital gains tax go up because of fiscal deficit pressures. Do you see the government doing anything around direct tax changes?
A: That will be a very worrisome factor. The introduction of long term capital gains may not be fundamentally a big thing. However, sentiment wise, it will dampen sentiment significantly.

Source: http://www.moneycontrol.com/news/mf-interview/mkt-will-take-55-fiscal-deficit-no-positively-madhu-kela_443888.html

UTI Master Equity Plan Unit Scheme declares dividend

UTI Mutual Fund has declared a dividend 15% (Rs 1.5 per unit on a face value of Rs 10), in UTI Master Equity Plan Unit Scheme. The record date for the dividend is March 3, 2010.

All investors registered under the above scheme as on record date March 3, 2010 will receive this dividend. The NAV under the dividend plan of the scheme as on February 25, 2010 is Rs 44.04.(Check out - Recent MF Dividends)

UTI Master Equity Plan Unit Scheme is and closed ended equity oriented scheme. The scheme primarily aim at securing for the investors capital appreciation by investing the funds of the scheme in equity shares of companies with good growth prospects.

Source: http://www.moneycontrol.com/news/mf-news/uti-master-equity-plan-unit-scheme-declares-dividend_443951.html

Kotak Emerging Equity Scheme to be converted into Open Ended Scheme

Kotak Mutual Fund has announced the conversion of Kotak Emerging Equity Scheme, a three year close ended equity growth scheme into an open ended equity growth scheme with effect from 31 March 2010.

Unitholders of the scheme who are not in agreement with the conversion may redeem their units at applicable NAV or switch to other open-ended schemes of the fund house without payment of exit load between 1 March 2010 and 30 March 2010 (both days inclusive). Kotak Emerging Equity Scheme will be an open ended scheme from the business day immediately following the closure of exit option period i.e. 31 March 2010. No action is required in case the unitholders are in agreement with the aforesaid conversion.

The exit load charge will be 1%, for exit within 1 year from the date allotment and nil for exit after 1 year from the date of allotment of units. The load structure shall be applicable to units allotted on or after 31 March 2010.

Kotak Emerging Equity Scheme is a close ended equity growth scheme with the investment objective to generate long-term capital appreciation from a portfolio of equity and equity related securities, by investing predominantly in mid and small cap companies.

Source: http://profit.ndtv.com/2010/02/26095857/Kotak-Emerging-Equity-Scheme-t.html

Union Budget 2010: Market borrowing lower than estimates

Bond market dealers have welcomed the union government’s debt borrowing targets for FY11, saying the lower numbers could lead to a short term rally in dated securities. Though bond yields fell immediately after the finance minis-ter’s speech, they were trading higher than the previous close at 14.45 hrs.

The yield on India's 10-year benchmark bond yield traded at 7.89% at 14.45 hrs. It had ended at 7.83% on Thursday. Dealers said this was due to uncertainity about Market Stabilisation Scheme (MSS) bonds that would be un-wound in the coming fiscal.

“There is no bad news, which is a positive in the short-term. But a government borrowing programme of Rs 4.57 lakh crore is sizeable and would drain out a lot of liquidity” said Ashish Vaidya head of fixed income currencies and commodities trading at UBS. “I will not be surprised if the 10-year bond ends the year at 8%”

Finance minister Pranab Mukherjee said on a gross basis, the government would raise Rs 4.57 lakh for FY11, compared with Rs 4.51 lakh cr in the current year ending March. Dealers had predicted this figure would be in the range of 4.6 lakh cr to Rs 4.9 lakh cr.

Net borrowing target (the amount after accounting for the scheduled bond redemptions that pump liquidity) stands at 3.45 lakh cr, compared with about RS 3.97 lakh cr this year.

“The target announced is largely in line with what market expectations,” said Prasanna Patankar, senior vice president at STCI, a bond house. “However the market is not clear about the MSS securitities desequestration required for the next year, hence there is a sell off” he added.

Market watchers say the budget has addressed the key issues of containing fiscal slippage and outlined a clear roadmap for the next three years. The finance minister projected the fiscal deficit for the next fiscal year at 5.5%, which was lower than market expectations.

SS Raghavan, head of treasury at IDBI Gilts, another bond house said he expects the ten-year yield to fall to 7.75% in the short term.

Source: http://economictimes.indiatimes.com/markets/bonds/Union-Budget-2010-Market-borrowing-lower-than-estimates/articleshow/5620037.cms

Budget raises borrowing to new record, bonds hit

Government plans record levels of borrowing next year and will count on surging economic growth to help cut its fiscal deficit, putting pressure on the central bank to be more aggressive in its monetary tightening. Finance Minister Pranab Mukherjee told parliament the government plans to increase market borrowing by 1.3 per cent in his $239 billion budget, pushing bond prices lower as investors anticipated a flood of fresh debt supply.

Analysts said the borrowing plan cements the likelihood that the central bank will raise interest rates at its next meeting on April 20 as policymakers scramble to keep surging food inflation from spreading to the wider economy and fueling social unrest. "Given that the fiscal stimulus withdrawal was not strong, the Reserve Bank of India (RBI) may have to be more aggressive in its policy tightening," said Robert Prior-Wandesforde, HSBC senior Asian economist in Singapore.

Many watchers praised the plan to reduce the fiscal deficit to 5.5 per cent of GDP in the new year from 6.9 per cent this year, with further declines in coming years, and a central bank deputy governor said the budget addressed concerns on fiscal discipline. Mukherjee announced plans to hike spending on social and agricultural programmes popular among voters, and adjusted taxes to put more money in the hands of the middle class. But some analysts said India had missed a chance to take more aggressive fiscal measures as Asia's third-largest economy gathers speed, reinforcing perceptions that the coalition government may not have the heart to make tough decisions.

The budget focused on keeping the economic recovery robust, but there was little mention of reforms, such as freeing state fuel and food subsidies, that investors say could help India rival China's years of double-digit growth rates. Some heavy economic stimulus brought in last year was trimmed, but not chopped, with rollbacks of certain tax breaks. "The first challenge before us is to quickly revert to the high GDP growth path of 9 per cent," Mukherjee told parliament. The 74-year-old minister is known for deftly appeasing India's myriad of caste and ethnic groups rather than pushing visionary reforms. The decision to spend more on agriculture in particular is bound to please a key rural support base that helped re-elect the Congress-led government last year.

RATE HIKES AHEAD

Financial markets focused on whether the government would pay more than lip service to imposing fiscal discipline and start weaning itself off aggressive deficit spending that risks pushing up companies' borrowing costs. Usha Thorat, a deputy governor at the Reserve Bank of India, said the deficit outlook was in line with expectations. "From our point of view one of very important thing was the fiscal consolidation. So, I think one would say it is positive for lesser inflation," she told reporters.

The deficit figure was slightly better than a Reuters poll forecast of 5.6 per cent and in line with government expectations. Gross borrowing for the new fiscal year will total 4.57 trillion rupees ($99 billion), below a Reuters poll forecast for 4.61 trillion but above a record 4.51 trillion rupees expected in the current year ending in March, Mukherjee said. For highlights of the Indian budget, click "With the fiscal deficit expected to be still high over the next fiscal year, it is clear that the onus will be on the RBI to hike rates in coming months in order to move policy settings closer to neutral and to deal with emerging inflation pressures," said Brian Jackson, strategist at Royal Bank of Canada.

SPENDING AND REVENUE

Total government spending will rise nearly 9 per cent in the next fiscal year, while revenues will rise nearly 18 per cent as the economy recovers. In one politically charged effort to raise revenue, the government said it would raise prices of gasoline and diesel fuel for the first time in 7 months. Mukherjee also pencilled in expected revenue of 400 billion rupees from the sale of stakes in government companies, a figure that some observers said was ambitious. India's economy grew 6 per cent in the December quarter, short of a Reuters poll forecast of 6.8 per cent, as farm output fell 2.8 per cent after a poor summer drought.

The slowdown in spending growth may help ease inflation, some analysts said. High food prices helped push wholesale price inflation to 8.56 per cent in January. Opposition lawmakers boycotted much of the budget session, saying government plans to increase fuel prices would further add to the woes of millions of Indians hit by high prices. The yield on benchmark 10-year government bond fell as much as 6 basis points earlier on Friday but erased that move on worries over high government borrowing.

The yield on the benchmark 10-year government bond ended at 7.86 per cent, four basis points higher than Thursday's close. Stocks ended 1 per cent higher after Mukhjeree announced measures aimed at increasing domestic consumption.

Source: http://economictimes.indiatimes.com/markets/bonds/Budget-raises-borrowing-to-new-record-bonds-hit/articleshow/5621690.cms

HDFC unveils Fixed Maturity Plans - Series XII

The New Fund Offer of HDFC FMP 13M March 2010, under HDFC Fixed Maturity Plans - Series XII, a close ended open scheme, will open for subscription on 02 March 2010 and close on 10 March 2010.

The objective of the scheme will be to generate income through investments in Debt/Money market and Government securities maturing on or before the maturity date of the respective plans.

The scheme will allocate 60-100% in Debt and Money market instruments (including securitized debt up to 75 of the net asset of the plan) and 0-40% in government securities.

The units of HDFC FMP 13M March 2010 will be listed on NSE.

Source: http://profit.ndtv.com/2010/02/26110201/HDFC-unveils-Fixed-Maturity-Pl.html