Expect good growth in domestic consumption & exports in 2018: A Prasanna
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
Listen to the Article (6 Minutes)
Summary
In an interview to CNBC-TV18, A Prasanna, Chief Economist at ICICI Securities Primary Dealership talks about the reasons behind the growth.
Direct tax collection until February of Financial Year 2018 has risen nearly 20 percent, Corporate income tax collection has grown 19.7 percent and personal income tax collection has risen 18.6 percent, said A Prasanna, Chief Economist at ICICI Securities Primary Dealership.
Prasanna said that the Income Tax department seemed to be holding back refunds which is bumping up tax numbers and said that the outlook for corporate tax looked good for next year as well.
According to him, revised tax collection target of Rs 10 lakh crore for FY18, should be met.
“We expect good growth in domestic consumption and exports in 2018”, he added.
Below is the verbatim transcript of the interview.
Latha: What is the next step with this rally? 7.35-7.38 percent holds and we are going to see bond yields falling further in April?
A: Yesterday what happened was like the release of a blockbuster movie directed by the finance ministry. It was an amazing set of measures that they announced. More or less listening to most of the demands that industry had asked them for. So, some of the things that you had well covered in your earlier reports had led to this kind of a rally.
A little bit of background to the whole thing is that yields had gone up by nearly 100 basis points over the last I would say 5 to 6 months equally spilt between fundamental factors and technical factors. Fundamental factors were the global yields and oil, domestic inflation going up, current account deficit going up. In broad, the slightly deteriorating macros of the Indian economy and as well as the global macro factors.
The technical factors were factors like the need for the banking system to take care of bond buying in a rising interest rate scenario and hence the need for them to manage the duration of their investments. These were broadly the reasons why yields had gone up. So, what has happened yesterday is at least the correction of most of the technical factors which is to say that now the government is far more going to be proactive in issuing short maturity bonds less than five years they are going to be proactive in issuing floating rate bonds and not only that they have actually postponed some of the borrowing from the first half to the second half by announcing a far lesser borrowing for the first half.
Also they are now relying more on small savings collections to fund the borrowing program, so all this has led to the demand supply situation being restored in a much better fashion. But going ahead, so this is the impact that we have seen already right. So, maybe it goes down to seven quarter at best and maybe even a few business points below that. But going forward, see in markets everything else doesn’t remain constant. We will have to keep tracking a whole lot of fundamental factors as well, so what could now become important is the stance of the Reserve Bank of India, the policy is just in the first week of April. What is going to happen to global bond yields, the US 10-year is hovering between 2.80 and 2.95 percent it’s not going beyond 2.95 percent yes, but it is not going down either.
The Fed rate hikes have been three rate hikes which has been factored in this year including the one which happened and next year they have already indicated actually one more hike and one more hike later in 2020. So, all this means that once the correction of yields, the technical correction of yields has happened it is back to normal business hopefully and we will have to see banks getting back into the auctions next year and we will have to follow fundamental factors very closely to figure out where it goes from here.
Sonia: So a two-part question for you one – how much do you think the yields could move further over the next say three to four days and two – for ICICI Banks bond portfolio how much do you think the losses could reduce?
A: Regarding how much it can potentially move going forward, so I think 7.20-7.25 percent levels is something that is surely possible. It of course depends upon a whole lot of other thing. They will obviously be a lot of profit booking pressures which do come in and from that perspective will have to really match where the demand and supply goes from here. The good part is the government borrows a week later, so till that time at least the surge supply in the primary market is not needed to be taken care of.
Even the secondary market selling from the public sector banks which was coming in earlier in the last one or two months, my suspicion is that it will also come down because of the favourable technical factors that have now come.
Latha: So you think come April 1st PSU banks will buy?
A: No, that is something that you would have to ask them or maybe something that only time will tell whether they are buying or not but at least what is very clear is that the supply which was there in the 10 to 14 year segment which is somewhere in the region of 50 percent of the total borrowing program is now down to something like 28-29 percent of the borrowing program and that was a segment which required a lot of public sector bank participation or rather bank participation.
Now what they have smartly done is to do a barbell strategy of the borrowing program. They’re doing more in the two to five years segment which was not there and that will have end investors like asset liability management (ALMs) and even the foreign banking community ALM’s and all that. They have also increased more in the 15 to 19 and the greater than 20-year bucket where you have the passive investors like pension funds and insurance companies and so on and so sure. So, they have smartly reduced the risk supply which comes into the trading end of the market. Hence even if banks were not to participate to that extent it is really possible for the borrowing program, at least the initial one, two, three auctions to go through smoothly considering that they also have at their disposal floating rate bond issuances as well.
Latha: Is there a chance banks will cut deposit rates?
A: No, due to year end pressures, whatever was arise that level of unwinding can potentially happen in the beginning of next year. But even that I would assume is not going to happen on the retail deposit level because that has pretty much been stable. It is more of the wholesale deposit rates which went up to take into account the tightness in the domestic money market period and hence from that the interbank rates and the institutional deposit rates might come down a little in the first week of April.
Latha: So marginal cost of funds based lending rate (MCLR) may remain flat will they fall or will they rise in the next six months?
A: So MCLR is something that I mean obviously Asset Liability Committee (ALCO) will have to sit and decide about how it goes. But broadly from a system perspective, I would tend to think that they would remain flattish because if you have seen in the last four or five months even when G-sec yields went up so much it is not the MCLR went up anywhere close to that level. So, it is more of a function of deposit rate, so I think we will have to look at how the deposit rates moves in the system and then accordingly how the MCLR move which I think I would suspect that it will be more or less flat.
Latha: Final question would you worry about the second half? I mean can yields go back to 7.7 percent?
A: That is too long period, we all live in the short term. Short term is the next week and the week after that, so I would say that the other smart thing that they have done is to postpone most of the problems to the second-half. So, we will maybe at that time there will be other flows which will come in.
Latha: And to next year as well you are going to have a lot of short term paper issues and no buyback, so you worry about next year?
A: They have reduce the buyback, so that postpones it to the second half, they have reduced the borrowing in the first half, so that goes the postponement of the second half. So, we live and fight that battle when we come across that time, so I don’t think we need to bother about too much of it. Because there is anyway a confluence of factors at that time right I mean you are going to have the MSPs is kicking in at that time as well, you need to see where global yields have moved at that time, where Fed is indicating so on and so forth. So, lot of water to flow under the bridge till the time we reach the second half, we will worry for the first half as of now.
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
5 Minutes Read
Daily Newsletter
