Immediate sharp increase in diesel prices needed: Ajay Bodke

In a chat with ET Now, Ajay Bodke, Head-Investment Strategist & Advisory of Prabhudas Lilladher shares his views on the market.

ET Now: In the current environment, it is very easy to make a bearish scenario. Rather than focusing on the obvious pinpoints, should one now look at valuations? Is it time to focus on how markets could revive after the crisis?

Ajay Bodke: I agree with you, but at the same time, one cannot simply overlook some of the important measures that need to be undertaken to put our house in order. We need to look at sharp increase in diesel prices sooner rather than later.

From the time budget was announced till now, we have seen roughly around Rs 13 to Rs 14 of drop in the rupee per dollar. For every rupee drop vis-à-vis dollar, there is a under recovery increase of Rs 9054 crore. So, 40% of that comes to the upstream oil companies and the remaining 60% comes to the government.

We are looking at roughly Rs 70,000 crore of additional subsidies on the fuel front itself, which is between 0.6 to 0.7% of GDP. A sharp increase in diesel prices is needed with an immediate effect to ensure that the fiscal health does not further deteriorate and we are able to hold on to that red line.

With the nominal GDP growth assumption of 6.5% in budget, we are looking at sub 5% today. We need to keep a very close watch on the net tax receipt increase of 19.1%, ensuring there is no short fall on that front.

We will need to keep watch on 40,000 crore of divestment receipts and 40,000 crore of telecom receipts each that there is no short fall. We have had a short fall in both these heads in last year's budget. The estimates look too tall for me in the current scenario.

There will be these four pressure points on net tax receipts, divestment proceeds, telecom receipts and the ballooning fuel subsidies. The 1.3 lakh crore of increase in planned expenditure from 4.2 lakh crore to 5.5 lakh crore in the current financial year should not become casualty in order to ensure that the red line of 4.8% of fiscal deficit is not crossed.

The fiscal deficit in first quarter is 48.5% of the full year's number. We have a fiscal deficit of 2.63 lakh crore in the first quarter vis-à-vis 5.42 lakh crore for the full year. We need to trade very cautiously and ensure that the fiscal deficit remains between 4.8% of GDP.