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Mar 08, 2013, 03.14 PM IST
Krishna Kumar of Eastspring Investments says, on CNBC-TV18, that the market has already started to price-in FM’s baby reform steps.
Krishna Kumar of Eastspring Investments, who manages USD 4-5 billion across funds and products for the Indian market says: "The Budget has failed to address several structural problems with higher government borrowing and cuts in spending being key negatives for the market."
The finance minister has taken small steps in the right direction which the market has already started to price-in, Kumar told CNBC-TV18. "There is room for further reforms in next few quarters while the severity of the slowdown has been underestimated."
Below is the edited transcript of the show on CNBC-TV18
Q: Why are Indian markets suddenly so bumpy and what is troubling investors?
A: It is a combination of multiple factors. Globally, economies worldwide are at cross roads with currencies are flying all over the place. India has its own set of troubles which don’t seem to be resolved quickly or easily. There were expectations of a fair bit of runway from the existing scenario in the last six months on continued policy reforms.
However, that momentum will start building from now. The investor is a bit spooked post Budget which should have addressed more issues than it has. Though it is a slow start, I hope the situation will recover soon.
Q: Has the Budget disappointed investors?
A: Expectations were a bit high but we normally don’t expect too much from the Budget. For us it is more of a government income and expenditure statement, but it contained a few elements that have spooked the market. One is the higher borrowings that the government is looking for and the cutback in expenses. Cut in expenses directly relates to capex and that has spooked the markets. Increased borrowing of 4-5 percent means that bond yields don’t come off.
Though the finance minister has already demonstrated capability for fiscal prudence, the expectations regarding monetary easing and roadmap for further reforms was ignored in the Budget.
Q: Is the policy tailwind more or less priced in or will it continue to drive further rerating of the Indian market?
A: The reforms are irreversible and should have been done a long time ago. However any step in the right direction is always appreciated. I think the initiatives are being priced in. But I am not so sure if investors expect a follow through.
Q: Will any of this tailwind fade as the elections near?
A: The run-up to the election has already started and it is a surprise that the finance minister has managed to achieve this much. Chidambaram has a few quarters more to announce further reforms if the polls are not pre-poned.
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