ET Now: What are you looking for in the budget?
Madhusudan Kela: Mr Chidambaram has been very transparent. I am looking more at qualitative factors rather than numbers.
ET Now: Give me an example of that.
Madhusudan Kela: Instead of the budget I am looking at the budget session and what happens in the session. Will the Insurance Bill be passed? Will the Pension Bill and the Land Acquisition Bill be passed, because some of these are expected by the market. Also, we will have to see if we have a clear-cut roadmap for DTC. Will we have some more clarity on GST? These are softer issues which will build confidence for the overall reform process and overall governance in India.
ET Now: Do you think we could be in for a strong correction after the budget?
Madhusudan Kela: I do not know. Maybe it could come in March, maybe it could come in April. Today from a liquidity standpoint the only force of capital is FII and I am very uncomfortable.
ET Now: Which is very dangerous.
Madhusudan Kela: That is why I am very uncomfortable with that fact. Domestic institutions have been very aggressive sellers, a) because a lot of public sector companies had come, so participation was required, some of it was very attractive, b) you had a huge redemption from insurance companies and mutual funds. I feel that will get bottomed out in the next three-four months and I am getting some early signals by my interaction with various people that maybe by March-April the worst may be behind us. That could be the trigger point and that is when we have to evaluate. Now that does not mean that once you stop the selling the money will start coming. I am saying that is the trigger for the markets actually to bottom out. It could actually coincide wherein you have these domestic institutions redemptions peaking out and you have some outflow from the budget and that could create interesting opportunities in the market.
ET Now: Since the Finance Ministers will be juggling a lot of balls, from the capital market perspective, what exactly can he do?
Madhusudan Kela: The most important thing which I am looking at is what does the Finance Minister do apart from the softer part to encourage saving into financial assets rather than in investment avenues like real estate or gold. That is the fundamental problem of India. On one hand, our saving has gone down from 37% to around 29% now. On the other hand, whatever saving we have is still going into assets like real estate and gold. In the near term, it is unproductive. I am looking at what is it that the Finance Minister will do to increase the saving in financial products. A lot of things can be done. One is that pension funds can be allowed to invest in equities. The limit can be 5% initially, but it will be a huge encouragement. The other thing could be that infrastructure bond may come back and investment limit is increased. Whether the money comes in banks or debt or equity, as long as it comes into financial products, it will be a big positive and that is one single most important thing which I am going to monitor this time in the budget.