Finance Minister must focus on getting dollars: Shankar Sharma

“I think more than what is going with the underperforming markets what is really relevant for India is that we need huge-huge dollops of dollars and this is the elephant in the room and I am usually the guy who points out the elephant in the room,” says Shankar Sharma, Market Veteran.

From a Budget standpoint if there are no changes in the tax rate, if the finance minister focuses on growth and maintains a reasonable amount of continuity and if all the numbers which markets are working with in terms of capital expenditure, if they are met are we in for a strong post budget rally?
Yes, I would think so because the markets have been fairly tepid in the preceding few months and therefore that is always better than a bullish pre-budget market situation when markets run up in a couple of months or at least a month prior to the Budget. I have usually found that then markets have a poorer post budget run. When the markets have done poorly pre-budget then usually the stage is set for a very strong post Budget run. So I think just on the basis of probability, we should be looking at an uptrend post budget rather than flat to a downtrend market.

I think more than Mumbai-Dubai the focus has now shifted to China. Underperforming markets are the ones which are clearly the flavour of January and I think they are going to tend to be. What will now change the mood, what will bring FII’s back and can Budget really do the trick?
Yes that is a very-very relevant point because I think more than what is going with the underperforming markets what is really relevant for India is that we need huge-huge dollops of dollars and this is the elephant in the room and I am usually the guy who points out the elephant in the room.

The fact is that we are running into a significant twin deficit problem. One is the Budget deficit. We will see the fiscal deficit what the FM announces today but it could be 6-6.5.

And then we have a current account deficit which is probably going to be 4% or higher. In my view exports are headed nowhere but down because the two big trading blocks, US and Europe are not going to be buying a lot from India or for that matter anywhere else given their own situation.

So we have a significant problem in the CAD and because of this we have a twin deficit which is now into double digits. Last we saw that was in 2009 when we were classified fragile in 2010-2011.

I think nobody wants to talk about it but the fact is we are back to a twin deficit problem and more importantly we have a balance of payments deficit. So last year we had a BOP negative which is a rarity and by the looks of it FY23-FY24 is also going to be a BOP deficit looking at the pace of FII sales we have seen in the last month and a half.
So I think India does need to shred its complacence that we do not need FIIs, we do not need dollars, we are self-sufficient, we have enough capital. Sorry guys we do not, we are running short of dollars, we have a BOP deficit and therefore we need to convert that into at least a neutral if not a surplus to fund our current account which is already into a problematic zone.So to sound a bit of a sobering note here the FM must focus on getting dollars. Domestic capital has no option but to remain invested in India to be clear. So domestic insurers will buy government bonds because they do not have much else to buy but it is really foreigners who have now a plethora of options in China. For example, I put money in Mexico because that has emerged as a fantastic transaction in the last few months’ time. Turkey, Mexico and China again are great exporting nations. So all these countries have come into their own in the last month.