Budget 2012: Party with a brand new bull market in 2012: Ramesh Damani

It's a brand new bull market and everyone should try to make the best of it, says Ramesh Damani, member of the BSE. After the pessimism in 2011, the inflow of liquidity has lifted spirits and the market, so Damani believes that this year will be much better for equities.

"There are three things required for new bull market to begin. One is of course liquidity, which is the mother's milk of a bull market, then you need skepticism and then you need leadership and I find all of the three present in some degree or form in our market and in the US market," he said.

While the worry of lagging fundamentals still exists, Damani says that a characteristic of huge flows of liquidity is that people gloss over a few bad quarters of earnings. "It's a very sharp move, almost 30-40% move from the bottom, so you don't want to miss it," he said.

According to him, a cocktail of fiscal consolidation, resurgence of reforms and interest rate cuts could take the Sensex back to 21,000. "There is a party going on, so participate in it," he says.

ONGC auction: What went wrong?

Yesterday, Oil and Natural Gas Corp 's (ONGC) share auction was affected by a system glitch due to large last minute orders.

In an interview to CNBC-TV18, Rashesh Shah, chairman and chief executive officer of Edelweiss Group says, it was the first experiment of its kind.

He also says, the amount was very large- USD 2.5 billion. "Most of the IPOs and FPOs in India are about Rs 4,000-5,000 crore. Anything higher than that usually needs a lot more effort on the part of the brokers and investment bankers to sell and convince people," he adds.

Beside that, he feels investors had little time to prepare themselves for the auction. "People had only 48 hours to arrange the cash. Arranging cash even for institutional investors takes some time," he asserts.

Also, he says, the rupee liquidity is at its worst. "We have not seen this kind of liquidity crunch for a long time," he adds.

ONGC auction: Experts glad it's over, say stock may do well

Below is the edited transcript of his interview with CNBC-TV18's Latha Venkatesh and Ekta Batra. Also watch the accompanying videos.

Q: ONGC, are you a little shocked by the series of happenings after 3:30 pm? What's  your key takeaway from the ONGC divestment?

A: Our view has been slightly contrary. It was the first experiment of its kind. It happened only in the last four weeks.

The amount was very large-USD 2.5 billion. Most of the IPOs and FPOs in India are about Rs 4,000-5,000 crore. Anything higher than that usually needs a lot more effort on the part of the brokers and investment bankers to sell and convince people.

Given the Indian market, raising more than Rs 3,000-4,000 crore should have a lot more effort. It was something new and it was a very large amount, USD 2.5 billion.

The fourth aspect is the rupee liquidity is at its worst. We have not seen this kind of liquidity crunch for a long time.

Q: On the future divestment plan, what do you think could be changed around or what could have been done better yesterday to avoid all of the confusion that took place?

A: Four-five things will be considered now. First, from the announcement of the issue to the actual auction date, if there is about a week or eight-ten days then a lot of the brokerage houses and investment banks will get prepared. They will come out with the research notes. They will also talk to investors. So, I think the first is to give some more time. Here people had only 48 hours to arrange the cash. Arranging cash even for institutional investors takes some time. So, I think atleast a gap of a week or slightly more than a week would be very efficient.

Along with that, there should be some kind of an economic incentive for the brokers and the investment banks to go out and sell the story. Third, instead of doing one large lot, breaking it up in smaller amounts would also be easier. For the market, in India, to come up suddenly with Rs 12,000 crore, especially after the MCX IPO, it may not be easy. So, I think smaller amounts, more frequent auctions, some amount of preparation time and economic incentives for the brokers could be good ideas.

Q: Do you think they would be able to do something more before March 31, after this experience?

A: I think smaller amounts in good companies can still go through. ONGC, had it been three tranches of Rs 3,000 or Rs 4,000 crore each over three-four weeks, it would have been easier to get it done. Organising cash in this kind of liquidity crunch, which is going on in India, for a lot of the insurance companies, mutual funds, it may not have been all that easy. So, if they do smaller amounts in the next three-four weeks, any individual auction of Rs 2,000-4,000 crore should be possible in good companies at a reasonable price.

Union Budget 2012: Need to look at borrowing figures closely, says Ex-Fin Secy

When Finance Minister Pranab Mukherjee presents the Union Budget 2012 on March 16, experts will be keenly hearing his comments on fiscal deficit. India's fiscal deficit is a cause for worry now. It is expected to exceed the targeted 4.6% of GDP.

Former finance secretary S Narayan says, fiscal deficit in percentage terms will be optically low due to inflation. "Projected fiscal deficit for the next year is unlikely to be below 5%," he adds.

According to him, one needs to look at borrowing figures closely in the Budget. 

Narayan says, Oil and Natural Gas Corp 's (ONGC) auction was mismanaged.  ONGC share auction was affected by a system glitch due to large last minute orders.

He further says, the auction needed better co-ordination. "The auction was mispriced and didn't factor in the market condition,"

CNBC-TV18: IBH: ANAND MAHINDRA INTERVIEW

When stocks fall which 14 are good bets? Find out

Top largecap picks:

Coal India : Backed by 6% growth in volumes and 5% increase in blended realisations, CIL's earnings are expected to grow at a CAGR of 15% during FY12-14, despite sharp increase in the wage cost. We value the stock at Rs390, P/E of 12.5x FY13E operational EPS of Rs23.1 and cash per share of Rs102. We believe that valuations are justified, given the sustainable RoE in excess of 30%.

ITC : FY13e volume growth would be a function of excise action in forthcoming budget. We are forecasting 15% excise hike and conservative 2% volume growth in FY13e. Gaining traction in Soaps (6% market share). Expecting a FY13e breakeven. Agri and Paper margins have improved substantially over last three years and are sustainable. Agri business to sustain double-digit EBIT margins on the back of improved portfoliomix.  Improvement in dividend payout ratio will sustain the premiumvaluations. Solid earnings CAGR of 18% for FY10-14E.  SOTP- based price target of Rs240. Top pick in large cap consumer space.

Adani Ports & SEZ : Based on DCF, the value of the port stands at Rs100/share. Further, we are assigning a 50% probability to a 20-year extension of the concession agreement which translates to Rs21/share. The value of the SEZ at a 30% discount to NAV stands at Rs13/share, Abbot point contributes ~Rs 18/share, while all its other assets are valued at Rs10. Our SOTP value stands at Rs161.

Bharti Airtel : We believe that the recent 2G verdict augurs well for Bharti as competitive intensity to moderate in the 2G space driven by 1) exits and 2) extended payback periods for those who re-bid. However, the industry still remains competitive with 5-6 players in each circle. We value Bharti at ~7x FY13E EV/EBITDA, at a premium to Idea at target EV/EBITDA of 6.5x, primarily owing to the insulation from the 2G scam and diversification to regulatory risk provided by the Africa ops. 'Accumulate'.

Top midcap picks:

Rallis India : Rallis is trading at par/premium v/s global as well as domestic peer on account of better financials, focus on branded products, higher return ratio and synergy with Tata Chemicals (TCL). We strongly believe that Rallis will trade at a premium, going forward too. We expect that Rallis could positively surprise on the back of its land bank, strategic stake in Advinus, income from pulses initiatives (with TCL) any time in the future. We have not considered these factors either in our estimates or valuation. Our TP is based on 18xFY13 EPS or land adjusted valuation of 16xFY13 EPS. Adverse weather/monsoon could be downside risk to our estimate/TP.

Gujarat State Petronet : Excluding the CGD value from the current market price, the stock is available at P/E of 8.5xFY13 (an attractive proposition for a utility play). The same in turn reflects lack of growth prospects, which we believe builds an over pessimistic scenario, going ahead. We recommend an 'Accumulate' on the stock, with a target price of Rs102/share.

LIC Housing Finance : We have a BUY on the company with a target price of Rs 340, implying an upside of 37.5% and FY13 P/B 1.84x.

Jain Irrigation : Stock has been sharply de-rated from one-year forward P/E of 25x to 9x and EV/EBITDA of 15x to 6x. We believe that the present valuation is comfortable, considering JISL's strong business model despite considering slower growth, going forward. We recommend 'BUY' the stock. Our TP is based on 8xFY13 EV/EBITDA and 13xFY13 EPS. Slower-than-expected growth in MIS or disappointment to improve balance sheet could lead to downward risk to our estimate as well as rating, going forward.

Polaris Financial Technology : Services and IP business look undervalued- Polaris product business is a late-cyclical business and the cycle seems to be turning for this business due to increased regulation from central banks. Combined with operating leverage, we expect Polaris to be able to grow its earnings by 20% organically in FY13 and FY14. The stock is trading at 5.8x FY13E earnings, steep discount to peers.

Jagran Prakashan : In a scenario where ad spends are weak and newsprint prices remain flat, we prefer Jagran in the print media space as it's conservatism (less cash burn from new launches) and dominant position in UP provides resilience to earnings relative to HT Media or DB Corp. Jagran is valued at 13.7x FY13E P/E and is attractive as compared to its peers (DB Corp - 15x; HT Media - 16x) and provides a 24.5% upside to our target price of Rs 131. 'BUY'

Petronet LNG : We continue to believe that the changing volume mix in favour of spot volumes on account of strong demand estimates is likely to keep PLNG in good stead. Moreover, we expect the strength in marketing margins to continue, going ahead due to subdued domestic gas production profile. Increase news flows on the new LNG terminal planned on the east coast and capacity expansion at Dahej is likely to guide Petronet LNG into high growth orbit, going ahead. While PLNG's utility nature of business (stable re-gasification margins and term contracts), low regulatory risks (re-gasification margins are not currently under PNGRB's purview), coupled with domestic gas shortages, will result in significant further upsides to the stock. We recommend 'BUY', with a DCF-based target price of Rs197/share.

MindTree : We expect steady performance from the company, both in terms of growth and margin expansion. We retain our 'BUY' rating, with a TP of Rs550, 10x FY13e earnings estimate.

Amara Raja Batteries : The current valuation seems attractive, given the strong balance sheet, with return ratios in excess of 20% and earnings CAGR of 16.7% for FY12- FY14E. We maintain our 'Accumulate' call on the stock.

Cummins India : Cummins is trading at 18.3x FY13 earnings. We believe, given the strong franchisees and product profile, the company will be the biggest beneficiary of an upturn in the capex cycle. We believe it can continue to surprise on the upside in terms of earnings. We maintain our 'BUY' rating on the stock.

Budget 2012: Government needs to act fast on DTC, GST, says V.K Vijayakumar, Geojit BNP Paribas Financial

The Indian economy grew by 8.5 % during 2005-10 - the period which includes the Great Recession of 2009 and the worst draught India faced in recent memory - making it the second fastest growing economy in the world. The remarkable resilience shown by the Indian economy during the global financial meltdown and the Great Recession was widely appreciated. 

The good growth rate of the crisis years was achieved thanks to the fiscal and monetary stimulus provided by the government and the RBI. However, the macro situation is very different now. For FY 2012 India is likely to clock only 7% growth. There is no room for fiscal stimulus; inflation still above the comfort zone precludes the possibility of sustained and sharp interest rate cuts.

If India is to achieve its economic and social objectives, sustained high growth is a must. But we are facing major headwinds here. Our savings rate has fallen from 36.8% in 2007-08 to 32.3% in 2010-11. Consequently, our capital formation has fallen from 38.1% to 35.1% during this period. The main reason for this sharp cut is the rising fiscal deficit. Fiscal deficit of the centre rose from 2.8% in 2007-08 to 5.6% in FY 2012 (projection).

Slowdown in the economy has also been caused by the savage monetary tightening by the RBI which raised interest rates 13 times since March 2010. The RBI has been fighting inflation without any help from the government through fiscal deficit reduction. Excessive reliance on monetary tightening, ignoring fiscal consolidation, is a sub-optimal solution.

The bottom line is very clear: India can return to its high growth path only if we achieve reduction in fiscal deficit. Therefore, fiscal consolidation should be the number one item on the agenda of budget 2012-13. Action on the fiscal front will give the RBI the much needed room to maneuver interest rates down. To accelerate growth, the government will have to move fast on DTC, GST, the land acquisition bill, the mining bill etc. There are expectations from the government on these fronts.

It would be desirable if the government initiates some measures to encourage financial savings and investment. Some concessions to first time investors in the stock market would be a welcome step.

This budget is crucial from the reforms perspective. Since general elections are due in 2014, the 2013-14 budget is likely to be more populist. Also, since the coming budget is being presented after the assembly elections, the finance minister can afford to be pro-active. Therefore, the government should seize this last major opportunity during its present tenure to announce bold reforms and shake off the criticism of governance paralysis. 

The needs of Infra

INDIA INC eagerly looks forward to Union Budget 
2012-13. In a scenario of high inflation, liquidity crunch, high interest rates and subdued business sentiment, the Budget is expected to provide policy directions that will shape the course of our economy. Infrastructure can be a game-stopper here, if capacity addition is not done proactively. A push in this sector is much needed. Companies and SEZ units in this sector need to be exempted from Minimum Alternate Tax (MAT). The $30 billion annual cap on External Commercial Borrowing (ECB) may be lifted temporarily so that India Inc raises more long-term resources from abroad for infrastructure.

Sectors that merit immediate attention are:

POWER: The benefit for this sector under Section 80IA will expire on March 31. However, given the huge demand-supply mismatch, it is imperative that the government extend it. The financial health of state electricity boards is a major area of worry, and can translate into a banking sector crisis if not addressed. The VK Shunglu Committee recommendation, that RBI should buy all bad SEB loans from banks, needs to be taken seriously. Around 55 per cent of our power production is coal-based, but despite abundant reserves, we import 140 million tonne annually. Of the 294 coal blocks here, 140 are in the no-go zone. These things must be rectified.

ROADS: Rural roads need our attention. Better transport network in the hinterlands will revitalise rural economy. Government should consider building concrete roads along select rural stretches. Although they costs six to seven times more than asphalt ones, they need minimum maintenance and last very long.

LAND ACQUISITION: This has emerged as a serious challenge both for infrastructure creation and industries. While the centre has a Land Acquisition Bill, each state is free to make its own. Centre should reach out to the states and work together to identify non-agricultural or fallow tracts, and create a national land map. Farmers willing to offer their land for industrialisation can approach state governments. Based on this ‘land bank’, industries can buy land from the state government and also directly negotiate with farmers. Government can play the facilitator. Connecting each zone to the nearest highway with a cement road and a rail link can facilitate attracting investment.