With the Union Budget, what is the stock market pricing in and how will it move post budget? Not much, said Shashank Khade, VP - Portfolio Management Services, Kotak Securities, in an exclusive interview to CNBC-TV18. The key cues to watch out for, though, would be how the government tackles the issue of fiscal deficit and disinvestment, Khade said.

If government comes out to be positive in terms of fiscal deficit or for that matter what it intends to do for infrastructure and it is far more clear in terms of what it intends to do in the next couple of quarters, then, I think, it will be mildly positive but Im not sure whether there will be drastic moves because of the budget per se, Khade said.
On sectors that may be in news due to the budget, he said: Irrigation and education have always been the best favourites post or pre-budget because most traders punt on these sectors whenever there is any positive statement made during the budget.

Here is a verbatim transcript of Shashank Khades exclusive interview on CNBC-TV18. Also watch the accompanying video.

Q: How are you feeling going into the budget? One opinion is suggesting that post Budget, the markets are more prone to slipping down rather than moving up, would you agree with that assessment?

A: No. We have had two events in this quarter, one was government formation and the other is the budget. While there were no expectations from the government formation and it positively surprised the market, we got 40 days to keep discounting what can come out of the budget.

Every week, we saw different expectations coming out of different sectors, different companies which could go for disinvestments. We have scratched hard and possibly looked at the blue sky scenario of a budget. My sense is that with so many expectations, Im not sure what and how much would be the extent of positive surprise that the budget could possibly present. Of course, the markets may want it to go past as quickly because at least the uncertainty goes away and one can start thinking about the earnings quarter as well as starting to look at how the reform process starts off from budget onward.

The government, I think, will get into the action post-budget. The budget would be an important event to go past right now. Im not sure how much would be the downside momentum or for that matter even the upside momentum could be because throughout June, the markets did nothing. Post the euphoric May 19, the Sensex has lost about 1%. One needs to see whether 17-18% upside, which we saw post the government formation, can that hold and give us a positive surprise from there. So that is how the markets are stacking up right now.

Q: Any clear spaces you think will be beneficiaries of the budget because oil, education etc have made small moves? So would you bet on anything getting a clear boost?

A: Over the last 30 days, we went through cycles in terms of discounting the positive. I am not sure in terms of any sectors has been left behind in terms of an immediate upmove after the budget. Education or healthcare has been talked about quite a bit and outlays are being talked about for these sectors. Irrigation and education have always been the best favourites post or pre-budget because most traders punt on these sectors whenever there is any positive statement made during the budget.

However, I am not sure whether life changes for these sectors immediately and neither are investments made based on outlays, which take a long time to fructify. So post budget, one would have to look at how the government manages the tight rope between taking care of the rating agencies on one hand and taking care of the growth impetus to the economy on the other. One has to see how the equation is in terms of what the government is presenting because everyone today expects everything for each sector. A stimulus is expected by each and every sector for that matter, a rollback of duties is not wanted by many other sectors that have been affected. One cannot single out any single positive or speculate on a positive that can happen. The disinvestment number is still a wide blackbox Rs 20,000 to 40,000 crore estimates have been put out. One doesnt know what sort of numbers are going to come out but I think one would be happy to see a proper roadmap in terms of a pattern, in terms of what disinvestment how the disinvestment programme would unfold over the next five years rather than just having a number being plugged in and certain companies being talked about. I think that would be extremely crucial from a budget perspective as well as for long-term investors who chip in into the Indian markets.

Q: What are your thoughts on sugar as a space? Is there anything that looks appealing there?

A: Sugar has had a huge run up in anticipation of firm sugar prices. Clearly there are companies now doing QIPs in that space but I think the scarcity of sugar and a possible lesser production of sugarcane this year is also being factored in into the stock prices right now. The minimum support price (MSP) is also known right now. A lot of the positives are already there in the prices. The inventory gains in sugar companies are also getting factored in right now. So I am really not sure unless the international sugar prices start marching upwards we will not see too much of an upside in sugar stocks right now from these levels.

Q: The two possibilities in the markets mind right now are: good budget will rally, moderate budget will not sell off too much. What will look like a shocker in the budget?

A: The fiscal deficit number will be important to look at because it will have an impact on the bond yields and hence it will also have an impact on the banking stocks. The sequence is something one has to track. Disinvestment number is also something that has to be looked at because this is one of the ways in which the government would raise resources for social sector or infrastructure spending or any stimulus which is it intends to give. The resource mobilisation of the government is also to be watched out. These are two factors to really look at in the budget. Which way will it head to? It all depends on the mood in the global markets as well as what really is expected during that point in time.

If we close somewhere here itself and the government comes out to be positive in terms of fiscal deficit or for that matter what it intends to do for infrastructure and it is far more clear in terms of what it intends to do in the next couple of quarters, then, I think, it will be mildly positive but Im not sure whether there will be drastic moves because of the budget per se.

Q: There is still a long list of them to go, what is the market mood about the rest of the qualified institutional placements (QIPs) that need to go through. Will get done, you think?

A: What the markets are getting slightly worried about is the clustering of QIPs and clustering of QIPs in the same sector. Even if, in a week, you have two-three QIPs, the markets are still ready to absorb but this week, we saw bunching up of QIPs post the successful Unitech QIP. Bunching up of QIPs is not a great sign because that leads to a feeling that is the QIP mania were to crowd out liquidity for the secondary market. That is something that proves to be a dampener for sentiments in the secondary markets itself. If the QIPs are spaced out in different sectors, there will still be appetite for various companies provided they are doing it at proper valuations and keeping money on the table for investors even in the near to medium term.

We are also seeing initial public offerings (IPOs) beginning to roll on. So the QIP, IPO and the government IPO, it will be a lethal combination that has to be balanced delicately and rather than going ahead in a haphazard manner and raising as much as you can in the shortest possible while, one has to see in the next two-three months, how this process unfolds.