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In an interview with ET Now, Rashesh Shah , Chairman & CEO, Edelweiss Group, says that inflation and government reforms will be the key for investors to watch out for and they should factor in 10% rise or fall on the markets.
Post budget why do you think the Indian markets have reacted on the upside?
I would call it a relief rally because there was a factor of high inflation and government fiscal deficit. The Finance Minister has managed to present a fairly balanced budget where spending is not getting out of hand. There is an increase in revenues. So, it is a very controlled, balanced budget, which says that things are not all that bad and India is still up and running and we have 8-8.5% growth. On the whole, the Indian markets saw a relief rally from the extreme apprehension and pessimism that was around on a pre-budget basis.
Has the finance minister promised too much because if you look at the budget arithmetic, there are a couple of gaps?
It is always there every year but the good news is that spending can be controlled. The unknown variables are oil price and the other subsidy on NREGA. If the spending can be controlled, the 18% increase in revenues is achievable. So, if there are gaps, they are more on the expenditure side. If the government can control that, we should be in good hands.
What is the biggest worry for Indian markets: inflation, growth or oil prices?
Of these three, I would always say inflation because everything else is a result of inflation. Historically we have seen whenever there has been long and persistent high inflation, usually growth has slowed down and asset prices have suffered in that environment. Oil price also is captured in inflation. So, for the next 3-6 months, the only thing that I as an investor would watch is inflation. Structurally, inflation is coming back under control and it is not galloping away in spite of anything that happens anywhere in the world.
Is inflation structurally coming down because inflation at the end of the day is a base number, and next year the base effect will kick in?
There are may be three components of inflation. One is the annualisation, which is the affect of the base effect. The second is inflationary expectations because if expectations go high on inflation, people start speculating which results in hoarding and that in its own way exaggerates inflation. Fortunately, inflationary expectations are not going out of hand. If we start seeing some control on that, inflationary expectations will stay subdued and will result in no galloping inflation. The third component is structural inflation, which is because of supply side constraints in India. If the consumption goes up, we are not able to increase appropriate supply in a rapid way, so that there is always some equilibrium. That will happen through reform. It has historically happened through reforms that as you open up the supply side whether it is happening in the telecom and airline industries, then consumption, even if it is going fast, it will not result in increase in prices.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
In an interview with ET Now, Rashesh Shah , Chairman & CEO, Edelweiss Group, says that inflation and government reforms will be the key for investors to watch out for and they should factor in 10% rise or fall on the markets.
Post budget why do you think the Indian markets have reacted on the upside?
I would call it a relief rally because there was a factor of high inflation and government fiscal deficit. The Finance Minister has managed to present a fairly balanced budget where spending is not getting out of hand. There is an increase in revenues. So, it is a very controlled, balanced budget, which says that things are not all that bad and India is still up and running and we have 8-8.5% growth. On the whole, the Indian markets saw a relief rally from the extreme apprehension and pessimism that was around on a pre-budget basis.
Has the finance minister promised too much because if you look at the budget arithmetic, there are a couple of gaps?
It is always there every year but the good news is that spending can be controlled. The unknown variables are oil price and the other subsidy on NREGA. If the spending can be controlled, the 18% increase in revenues is achievable. So, if there are gaps, they are more on the expenditure side. If the government can control that, we should be in good hands.
What is the biggest worry for Indian markets: inflation, growth or oil prices?
Of these three, I would always say inflation because everything else is a result of inflation. Historically we have seen whenever there has been long and persistent high inflation, usually growth has slowed down and asset prices have suffered in that environment. Oil price also is captured in inflation. So, for the next 3-6 months, the only thing that I as an investor would watch is inflation. Structurally, inflation is coming back under control and it is not galloping away in spite of anything that happens anywhere in the world.
Is inflation structurally coming down because inflation at the end of the day is a base number, and next year the base effect will kick in?
There are may be three components of inflation. One is the annualisation, which is the affect of the base effect. The second is inflationary expectations because if expectations go high on inflation, people start speculating which results in hoarding and that in its own way exaggerates inflation. Fortunately, inflationary expectations are not going out of hand. If we start seeing some control on that, inflationary expectations will stay subdued and will result in no galloping inflation. The third component is structural inflation, which is because of supply side constraints in India. If the consumption goes up, we are not able to increase appropriate supply in a rapid way, so that there is always some equilibrium. That will happen through reform. It has historically happened through reforms that as you open up the supply side whether it is happening in the telecom and airline industries, then consumption, even if it is going fast, it will not result in increase in prices.
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