Tag: Ananth Narayan

Economists believe monetary policy needs course correction as April inflation likely to cross 7%

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Consumer price index (CPI) has jumped to 6.95 percent for the month of March, which means it is breaching Reserve Bank of India’s comfort level of 6 percent. Since prices across the board have risen which pushed inflation to nearly 7 percent, the RBI may now be forced to hike interest rates in a bid to tame inflation.

To understand how economists are viewing the March inflation numbers, CNBC-TV18 spoke to  Sonal Varma, MD & Chief Economist-India, Nomura Financial Advisory & Securities, and Ananth Narayan, Professor, SPJIMR.

Varma stressed that inflation was already tracking above 6 percent for FY23. She explained that demand side pressures are starting to mount along with pending supply side adjustments.

She said, “Inflation was already tracking above 6 percent for FY 23 prior to the upper surprise we have seen in March. There are a bunch of supply side adjustments that are pending, demand side pressures that are building up, and second order effects that will play out. We were expecting an average CPI inflation at 6.2 percent in FY23. Given the upside surprise in the March reading, we have revised up our FY23 average estimate to about 6.6 percent.”

She mentioned that the monetary policy cannot ignore where inflation dynamics are headed as demand and supply side effects of the pandemic have been playing out. She pointed out that there is a need for a course correction in the monetary policy stance. She believes a cumulative rate hike of 200 basis points (bps) by 2023-end will be done by the RBI.

Read Here | RBI may need to hike rates by 25 bps as India no exception to global inflation: Arvind Sanger

Varma  said, “I don’t think monetary policy can ignore where inflation dynamics are headed. The question we need to ask is, if the output is so weak if credit demand is so weak, and we have underlying inflation of 6-6.50 percent, then where will inflation be if actually everything comes roaring back? What it is basically pointing to is that, yes, there have been demand-side effects of the pandemic, but there have also been significant supply-side effects from the pandemic. So I do think monetary policy has to respond.”

She added, “At 4 percent repo rate, if you’re talking about inflation of greater than 6 percent at least for the next 12 months, the stance of monetary policy right now is ultra accommodative; hence, course correction needs to happen.”

Narayan pointed out that the April print for inflation might even be higher than 7 percent. He cautioned that the monetary policy framework has become dangerously simplistic.

He said, “It does look like we are going to have repeated 6 percent plus inflation. I agree with 6.6 percent as well as a distinct possibility. In fact, the April print, by the way, might be higher than 7 percent given the oil price adjustment as well so watch out for all of that.”

He added, “The problem with the monetary policy framework is it has become dangerously simplistic. The framework gives the impression that you can keep CPI within a range merely by changing repo rate Macroeconomics is far more complicated than that, as the last two decades have shown and this is dangerously simplistic.”

Read Here | SBI Chairman wary of inflation but says growth continues to be main focus

According to him, short-term rates are addressing the wrong part of the market dynamics.

He said, “The markets are expecting a very steep rise in short term rates. My limited point is the following – short term rates is probably addressing the wrong part of the inflation metrics right now. Even from a monetary sense, there is simply no trade growth. On the contrary, a lot of investment growth which comes even from mortgages is linked to short term rates. It is not long term rates.”

Watch the video for the full interview.

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Former Myntra CEO’s Mensa Brands raises $50 mn, looks to invest in online-first brands

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Mensa Brands, a house of brands started by former Myntra and Medlife CEO Ananth Narayan, has raised $50 million in its Series A round of funding.

The funding round was led by marquee investors Accel Partners, Falcon Edge Capital, Norwest Venture Partners as well as prominent angel investors such as Kunal Shah, Mukesh Bansal, Rahul Mehta of DST Global and Scott Shleifer of Tiger Global.

Mensa is looking to acquire and invest in online-first brands.  A statement from Mensa Brands stated that its vision is to partner and invest in digital-first brands and scale them exponentially. This is the latest venture in India to launch a ‘Thrasio model’ business, named after the popular American company, which is an acquirer of Amazon third-party private-label businesses.

Over the next 3 years, Mensa looks to acquire 50-plus brands across categories including home, garden, apparel, personal care and beauty.

Mensa has also additionally raised debt financing facilities from Alteria Capital and InnoVen Capital.

Ananth Narayanan, founder and CEO of Mensa Brands, said in a statement, “Scaling digital brands from India is a large opportunity. Incredibly excited and passionate about partnering with terrific founders and helping scale their brands globally. Having seen this first hand at Myntra and Medlife we know the effort it takes to scale a brand digitally – we will be a true trustee of your brand.”

Narayanan previously served as CEO of Myntra, co-founder and CEO at Medlife and also, as a Senior Partner at McKinsey & Company.

Several similar house of brands have emerged on the Indian startup landscape in recent months, with reports suggesting that the likes of Tiger Global will be backing a similar company founded by a former FLipkart executive. According to reports, ecommerce platform Firstcry is also expected to launch a similar venture.

“In Mensa, we see the birth of ‘Thrasio of India’ and are delighted to back Ananth and team on their vision to create India’s first digital House of Brands,” Niren Shah, Managing Director and Head of Norwest Venture Partners India, said.

Subrata Mitra, Partner at Accel Partners, said, “We are excited to partner with Ananth and the team at Mensa. Not only are they truly strategic and high caliber, but also have chosen a problem of brand aggregation that we believe has the right tailwinds. With the digital acceleration of commerce globally, this model would be additive to the brand owners, the platforms and the consumers and should thus scale rapidly.”

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SEBI allows MFs to ‘grandfather’ excess exposure; here’s what experts say

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Market regulator Securities and Exchange Board of India (SEBI) has notified a new rule capping mutual funds (MFs) exposure to perpetual bonds, also known as additional tier 1 and tier 2 bonds. This naturally affects banks – which use this as a popular route to raise capital and also mutual funds – among their largest consumers who invest in AT-1 bonds seeking a higher return. G Padmanabhan, Former Non-Executive Chairman, Bank of India (BoI), Ananth Narayan, Professor, SPJIMR and Amit Bivalkar, Director, Sapient Wealth Advisors and Brokers discussed the likely impact on both.

“The valuation norms do look a little troubling. It could create disturbances but I think this will get sorted out. While there is a bit of a flutter in the market right now, the intent that SEBI has come out with is quite right. Firstly, we have seen that some of these instruments particularly AT-1 bonds are sometimes paradoxically riskier than equity. So, it is important that therefore the risk be curtailed, which is what SEBI has done. Secondly, sometimes these bonds don’t trade for a long time. So, in those cases can we assume that these bonds will get called in the next call date and therefore the fact that there should be alacrity in the way in which the valuations move is also something which SEBI is trying to address,” said Narayan.

Bivalkar believes liquidity or credit risk is a problem.

“The credit risk of the issuer has not changed. It is only that a two-year bond now is getting replaced by a 100-year bond. So the risk of capital being defaulted or downgraded remains unchanged. MF generally have a 5-20 percent kind of exposure for perpetual bonds across some of the bond funds, some of the banking PSUs, credit risk funds. This does not worsen the liquidity profit also as portfolio exposure is not higher than the double digits there. So I don’t think the liquidity is a problem or the credit risk is a problem,” he said.

According to Padmanabhan, as of now, there are niche investors who get into this perpetual bond.

“The banks raising money through this route is getting further cannibalized. I don’t see much sense in valuing any bond as a 100-year bond. I think we need to be more nuanced on this. I hope SEBI will listen to the issues that the market is flagging and come out with adequate clarification,” he stated.

For the entire conversation, watch the video.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

RBI wants retail investors in govt bonds; here’s what it means according to experts

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In the latest monetary policy, the Reserve Bank of India (RBI) governor said that the RBI is going to allow direct access to retail investors to buy government bonds. He described it as structural reform, a revolutionary step.

It is going to be the direct retail access, which means investors can register with the RBI itself and get access to both an IPO of government bonds as well as participation in the secondary market.

This is a revolutionary step because from the RBI’s point of view, from the country’s point of view it increases the number of people who participate in government auctions, it will place India in a select few countries, which allow this facility and very importantly this enhances access.

Hitendra Dave of HSBC, Ananth Narayan, Professor at SPJIMR, and G Padmanabhan, former executive director at the RBI, spoke to CNBC-TV18 about how can RBI ensure retail investment in government bonds and will it succeed.

Dave said, “This is a significant step that RBI has taken, I certainly agree with that statement that it is a structurally significant step forward. My own enthusiasm is conditional on how the final scheme rolls out. The kind of steepness that we currently have, so I hope they launch it quickly because there are good times to launch a product and there are not so good times this looks like a good time anyway market is exhausted with the supply.”

He said, “I hope it is not made for pure retail, it is not focused only on pure retail. Fixed income markets globally are underpinned by the big boys, so I hope they are very liberal in their definition of who can participate in this direct accounts – Hindu Undivided Family (HUF), family, offices, people with large amounts of money that is one.”

Ananth Narayan said, “One of the reasons why we have been discussing this retailing of government securities for a long time and it has not worked out, as you rightly pointed out there are much better instruments available right now, including your small savings. Now today you have RBI savings bonds as well, you have the Bharat ETF, etc. which provide much higher returns and there is an anomaly which we have been living for a long time, the taxation if I go through a gilt fund is very different and more advantageous.”

“On the repo part I would urge some huge amount of caution, this is not for normal retail, this is a leveraged product, this is a risky proposition and I will tell you what the risk is. You are buying a 5-year bond and you are funding it on an overnight basis so you are making a spread between Rs 575 and Rs 350 or whatever the rate is on an overnight basis but you are running a market risk and interest rate risk because you are carrying a long duration asset on your books and the price of that instrument can change as interest rates change.”

To know more, watch this video.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Economic Survey 2021 tabled in Parliament: Experts’ Views

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Economic Survey 2021 has been tabled in the Lok Sabha. The survey has called for more active, countercyclical fiscal policies but at the same time it is not a call for fiscal irresponsibility. DK Joshi, Chief Economist at CRISIL, Soumya Kanti Ghosh, Group Chief Economic Advisor at State Bank of India (SBI) and Ananth Narayan, Professor at SPJIMR shared their readings and outlook.

“In one line, it means that the survey is in a way recommending balancing the immediate needs for growth. So, I think what will be very important to watch is when the budget comes what kind of a glide path do we see,” said Joshi.

“What I would read from this statement is that you might have a fiscal deficit which is budgeted above 5 percent but it will gradually go down to the FRBM target in the next two-three years, That is what I would read out of it,” Joshi added.

“This argument of countercyclical fiscal policy has been made earlier also and it makes sense because fiscal policy always needs to be countercyclical but the problem in the Indian context is that it has always been pro-cyclical,” said SBI’s Ghosh.

“It is an open secret that the rating methodology may not ascribe to the fundamentals but there are also things which we must take into account that the debt to gross domestic product (GDP) ratio this year should climb to more than 85 percent and there should be some part in the budget, which says that this is the fiscal policy,” Ghosh added.

According to Narayan, the broad point the economic advisor is making is that this is the time for fiscal push. “I don’t think any of us can disagree with that. There is need for investments into things like infrastructure if you want supply chains to come into India, there is need for investments into healthcare, education, sanitation, nutrition etc – nobody can deny that – there is investment required for money to revive the financial services ecosystem and our banks.”

“The first thing which is extremely important as we advocate a fiscal push is that there has to be a lot of attention paid to the execution of that fiscal push. It has to go into productive investments, it cannot go into inflation. To that extent, it is extremely important we make a commitment to reduce our revenue deficit to zero over the next five-seven years,” Narayan mentioned.

For entire discussion, watch the video…

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow