WF: Can you give us your first impression of the budget that's just been announced?

Rajiv Anand: I think the finance minister has been very pragmatic in his approach but at the same time I think the moves he has made towards fiscal consolidation are very satisfactory. The fact that we will be able to achieve 5.5% is good. More importantly, the 5.5% is not really with too much of arithmetic magic but fairly reasonable expectations in terms of revenue growth which is around 14.5%. This gives it little more credibility. He has also clearly articulated that we will go down to 4.8% and then to 4.1% going forward - I think that is clearly very positive.

The other positive is that disposable incomes have gone up in the hands of the consumer with cuts in taxation. Disposable income had got impacted due to inflation - I think what the FM is trying to do is to adjust disposable incomes to the extent of or at least to some degree - which is good for consumption oriented sectors.

I think the increase in excise duty is reasonably moderate, so we don't see too much of a problem maintaining the growth trajectory, despite the fact that the excise rates have gone up. Secondly I think from a growth perspective, I think there is sufficient allocation of resources to infrastructure projects, the commitment to 20 kms of road per day is positive - the intent is there but what we would like to see is the execution and implementation of that. The increase in allocation to the projects like Bharat Nirman project and the NREGA project continues which is positive, clearly some continued emphasis on education and health care is good. I think the fact that he has maintained these numbers on social and infrastructure spending is positive but I think he has also balanced it in taking credit from disinvestment of around 40,000 crores and another 35,000 crores coming from 3G. So therefore capital receipts are funding the betterment of this country - which is positive.

I think clearly we have a laid out road map of policies going forward, I think the intent of implementing direct tax code and GST has been reiterated. I think these two from a reform perspective will clearly put us in as he said in double digit growth trajectory, for the next 4 to 5 years.

WF: How will GST implementation add 1% - 2% to GDP growth as some analysts estimate?

Rajiv Anand: I think what happens is that given the fact we have central taxes and state taxes and various other forms of taxation, despite the fact that we are such a big country, it has created not one large market but small markets in each of the states. What happens is that once you go into a goods and services tax regime, the entire country then becomes one market as far as the manufacturer is concerned and it no longer becomes relevant on whether you are setting up your plant in an area which issues sales tax benefits - rather you will put up your plant where the raw material exists or where the demand exists as the case maybe.

WF: So to that extent of it promotes efficiency that can drive up GDP growth?

Rajiv Anand: Absolutely. Also, from a Government perspective, while there maybe some adjustment process but what happens is that the leakage through the entire manufacturing cycle in terms of revenues reduces, because each state there is a set of available taxes and exemptions and every time you add value to the process, you are getting your set offs. To that extent, is once again quiet positive.

WF: Do you see the diesel price hike fuelling inflation concerns that are already present?

Rajiv Anand: I think that according to our quick estimate, this 2 and half rupees of hike will impact inflation by about 30 - 35 basis points on a direct basis, maybe another 30-35 points on a indirect basis.

On a slightly longer term perspective, I think the fact that inflation is a concern is well articulated but also what has already happened is the fact that the monetary side has already reacted by raising CRR in the last credit policy and we are also seeing fiscal consolidation. Therefore to that extent, the management of inflation is also a bit of jugalbandi between the monetary side and the fiscal side - which is already happening. The FM also spoke about the fact that they will address the supply side issues through the state governments and finally and hopefully a good monsoon by June / July should help inflation come off.

WF: On the bond market side, I guess the 3.5 lakh crores net borrowing target that the FM talked about is pretty much bang on target of market expectations?

Rajiv Anand: Absolutely. I think the total number would be around 450,000 crores on a gross borrowing basis - which is large. If you see the captive demand, its about 250,000 crores from the banks towards SLR requirements - assuming deposits grow by approximately 17 to 19 %. Life insurance companies and provident funds would probably need to buy about 130,000 - 150,000 crores. That basically leaves you with a gap of about 100,000 crores, which is 50,000 crores here and about 60,000 crores from the sate government side. That is the real challenge as to how that gap of about 100,000 crores will get funded. Last year we got funded through the use of RBI's balance sheet, that was in an easy monetary environment. But here we are tightening liquidity on one side therefore to pump liquidity from the other side does not make sense. To that extent we do believe that yields will inch up as the actual borrowing program begins to play out in April-May-June, but that is probably a good time to buy into long term bonds.

WF: Finally, on equity markets, while the domestic scenario looks robust especially as the country embarks on a fiscal consolidation path, there are some market participants who continue to remind us that the world around us is fragile and that weakness in Europe and US will take its toll on Indian markets - just as they did in 2008. Are these concerns overblown or do we need to take note of these worries?

Rajiv Anand: I think if you see between 2004 and 2007, the market went up about 4X... while at the same time earnings did not go up at the same pace. Yes, it is likely that earnings will outpace the growth of the equity markets - it has already happened for almost a year and half and that could continue for a little while longer.

But I think the fact remains that if you set aside the equity market for just a moment and you do believe that yes we will get 7% to 7.5% GDP growth and a 20% profit growth, it is inevitable that markets will follow. It is just inevitable at some point of time that equity markets will begin to catch up.

If earnings trajectory is strong, if there are any externally induced corrections, we should treat them as buying opportunities.