Tag: Latha Venkatesh

States governments struggle to raise funds via bond issues

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

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In the debt market, states like Kerala and Karnataka have borrowed at a hefty 8 to 9 percent interest rate. This spike in cost has come on the back of reports suggesting that these states may borrow 50 percent of their loans in April itself. Reserve Bank of India has given states a late reprieve and allowed them more overdraft facilities. CNBC-TV18 Executive Editor Latha Venkatesh decodes why state governments are struggling to raise funds via bond issues.

States are sub-sovereign and if they are raising money at 9 percent, corporates will raise money at even more expensive levels. So the hope that Reserve Bank of India gave us a 1 percentage point rate cut is going to come to nothing. Hence, this remains is a cause of concern.

Kerala wanted to borrow money for a 15-year period and it was charged a punishing 8.96 percent. Karnataka got a 10-year paper at 8 percent, Maharashtra, a rich state was forced to shell out at 7.8 percent and these are the states where the COVID-19 response has to be big.

Overall, 19 states are borrowing Rs 37,500 crore. One of the reasons why perhaps investors did not go and buy their bonds is because there was a newspaper report suggesting that the government has given permission to states to borrow 50 percent of their full year borrowing in April itself. There is also talk among dealers that LIC probably did not come and buy as it normally does, because they collected lower premiums in the last quarter.

RBI did give some reprieve that states can remain in overdraft with it for longer 21 days. Earlier they could consecutively remain in overdraft only for 14-days. In a quarter they can be in overdraft for as long as 50 days. That reprieve was given so that states do not come and borrow, they just remain in overdraft with the RBI.

The 10-year bond ended at 6.4 percent, which is higher than what it was before the rate cut from the RBI came in last week. So a big damage has been done and this is not good news for corporates or for the government of India.

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Coronavirus crisis: Here are some suggestions for the govt and RBI to tackle it, says former RBI Guv YV Reddy

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

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The former RBI governor YV Reddy who was in decision making positions through the 1991 FX crisis, the Asian crisis, the US sanctions, the Lehman crisis spoke with CNBC-TV18’s Latha Venkatesh on how the central bank of the country and the government should tackle the coronavirus crisis.

He said the government and the Reserve Bank of India should resort to ‘freeze the clock’ that is when there is extraordinary emergency payments cannot be made. So, with the system going into freeze for a bit, all payments become due on a certain date.

The other thing that they can do is enforce credit guarantees. The Deposit Insurance and Credit Guarantee Corporation is used normally for guaranteeing deposits but the rules also allow it to guarantee credits.

Another rule that should be brought in is ‘Treasury Rule 27’. Under this rule payments can be authorised, which are otherwise not allowed. Under the rule a collector can authorise a payment to the treasury officer saying just pay this bill and even if they are not authorised by the rules the treasury officer pays that bill.

According to him, there are other small things that can be done by various state initiatives. He also recommended universal income scheme.

Following are the highlights of various suggestions:

FREEZE THE CLOCK

All payments become due on a certain date.
Order allows banks and other institutions to ignore time deadlines.
Banks, tax authorities can be directed not to enforce penalties.
Deadlines for interest dues, tax dues can be set aside.
Deadlines for off balancesheet guarantees can be set aside.
Reason is to prevent a liquidity crisis from becoming a solvency crisis.

DICGC CREDIT GUARANTEES

Deposit Insurance and Credit Guarantee Corporation can be used.
DICGC can partially guarantee credit of all MSMEs.
Basis for guarantee can be a multiple of GST paid example 50% of company credit can be guaranteed or 5x GST paid can be guaranteed.
Allows banks to increase credit to MSMEs stuck for repayments.
Repayment relaxation, credit guarantee for NBFCs’ borrowers as well.

TREASURY RULE 27

Payments under special authorisation of the collector.
Collector can order Treasury officer to make payment.
Measure used to make payments during floods and such emergencies.
Allow collectors to spend on testing kits, movement of people & provisions.

STATES’ INITIATIVE

Different states tackling problems innovatively.
States can put their experiences/schemes in a common website.

UNIVERSAL INCOME

Everyone other than salary earners should get money in their accounts.

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Maintain positive bias on FMCG, cement, IT and private sector banking segment, says Kotak MF’s Harsha Upadhyaya

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

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Harsha Upadhyaya, Chief Investment Officer at Kotak Mahindra Asset Management is maintaining a positive bias on certain sectors and stocks.

In an interaction with CNBC-TV18 Upadhyaya said, “There has been extreme panic reaction across markets and asset classes. Panic has clearly spread much faster than coronavirus. While markets have been choppy and could remain this way as these are extremely volatile days, global cues are not supporting a recovery, so it is difficult to state that everything is fine or to figure out where the bottom is going to be.”

He added, “Investors need to be ready to withstand some volatility. Such phases can offer investment opportunities for long-term investors as they are not worried about volatility.”

Talking about specific stocks Upadhyaya pointed out that most of the segments have seen significant selling in the last seven to ten trading sessions. “Before that we were more comfortable on the mid- and small-cap basket, but today I think even large caps offer some kind of a valuation comfort – not everywhere but at least in pockets.”

He added, “There are a couple of emerging themes, for example we believe that the rural economy will start to show improvement before the urban economy. So to that extent, some of the businesses dependent on the rural economy such as fertilisers, agro-chemicals and consumption stocks could benefit in this phase.”

“Depending on where valuations are, some of these [stocks] could be investment opportunities. Similarly, there are many businesses that are insulated from what is happening in the globe or from a forex perspective or from interest rate perspective. These stocks do not have leverage on the books or they do not have any foreign linkage, for example cement continues to be one such sector, so there are pockets where you can still find good buys.”

Speaking about sectors he noted, “The private sector banking segment should continue to offer reasonably strong and steady earnings growth. FMCG should also deliver numbers, but in some cases valuations may still not be at comfortable levels because that segment has not really participated much in the fall that has happened in the last 7-10 trading sessions.”

Apart from this, Upadhyaya added that the IT sector could deliver reasonably steady numbers. “Cement is another pocket where we have seen pricing strength in the recent past and it has no real foreign linkages. It is going to be beneficial in the sense that if raw material prices like petcoke etc start to come off then that should benefit the sector in terms of margins. So there are pockets where earnings are likely to remain steady or at least be better than what the market on a whole is going to give. So that is where I think if the valuations correct, one could look at investing further.”

Disclaimer: The views and investment tips expressed by investment experts on CNBCTV18.com are their own and not that of the website or its management. CNBCTV18.com advises users to check with certified experts before taking any investment decisions.

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

Aditya Puri of HDFC Bank: Not necessary successor will be internal

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

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The worry on my succession is overblown, said Aditya Puri, MD, HDFC Bank.

“I am very thankful that people believe that I can run this bank alone or I am the prime driver. The brightest moment I have is when I find a young guy at any other branch telling me what to do and he also understands all the strategy. So succession for us is not a one-time affair,” said Puri in an exclusive interview with CNBC-TV18’s Latha Venkatesh.

Puri said, “I am rooting for the best candidate. I am saying an internal candidate is good because he would know the people, he would know the system, etc. and his acceptability is higher. So when you go outside you obviously look for that exception.”

“We want to make sure that we hire the best candidate internal or external. There is a misconception that I do the vision, I do the strategy, I do the execution but it does not work like that. I wish I knew everything about technology, about last-mile distribution, about how the merchant functions but I don’t – its a team and I am first among equals,”  he said.

Talking about the fintech challenge that the banking sector faced, he said, “The way the ethos in the bank is and in the digital world is you have to work together as a team – you deliver the brand at the customer touchpoint, you have to remove the hierarchies. We started working about two-and-half years back on this – on what we want as a change in the bank because we saw telecommunications, computing, social mobility and artificial intelligence coming in. The Amazons and the Apple Pay took good advantage of this. We thought we could also do it to change our systems, that is our processing, our credit, our marketing, our technology everything and come in with the superior offering that could compete with an Amazon or a Google and provide a greater service.”

When asked if there are two opinions on the board regarding his successor, he replied, “Firstly, Deepak Parekh and I have known each other for forty years, so if there was a difference, I would have known about it. We will never be able to end the rumours. I am telling you categorically, Deepak Parekh and I both have the same interest for the best guy to come in whether it is external or internal – and there is nothing that this one prefers internal, this one prefers external. There are no two opinions in the board. The board unanimously gave the criteria and attributes that should be looked at and said, yes, we have strong internal candidates but you can look at candidates who have the status so that they can be accepted internally, so that we get the best available candidate. Around April and latest by May, we should be in a position to put our application in.”

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Expect panic selling in the market over next 4 to 6 weeks, says Christopher Wood of Jefferies

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

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Coronavirus, which broke out in China, is spreading fast to the other countries, bringing down stock markets across the world. Christopher Wood, Global Head of Equity Strategy at Jefferies, on Wednesday said there is panic on the one side and pandemic on the other, therefore, there could be panic selling in the stock market.

Wood said: “The first key issue was China and whether they have got the Coronavirus under control, my base case is that the evidence suggests that the cases have peaked in China and in that sense I have been positive.”

“However, the second big risk was whether the virus would spread out of China and also out of Asia. That is the risk I highlighted on Sunday and that is what has caused the risk off move in markets this week.”

“To me, right now, the big risk for markets is if the virus shows up in due course in North America and that is what the market has begun to worry about yesterday.”

“My base case remains that when the weather changes and we get out of the traditional flu season, the virus will burn out but clearly we have a potential for more panic selling on a 4 to 6 week view depending on the news flow. However the big thing that hasn’t really happened yet, and that could happen is the spread of the virus into North America.”

On India

He said: “On relative basis I am overweight India. Obviously one relative benefit for India out of what is going on in recent weeks is oil has declined sharply and the big decline in oil is almost wholly attributable to expectations of weaker demand on the back of the virus.”

“So, I am happy to be relatively overweight India for now. The other positive at least up till present is that you still have domestic mutual fund flows in India. However the big negative on Indian remains what has been very weak growth and the relative strength of the Sensex is just concentrated in a few top quality stocks. So for India to become an interesting absolute return market, you need evidence of a capex cycle and that evidence remains missing in action.”

On financial market

“From a financial market standpoint, what I have been saying since this virus came out to equity investors is that the best way to hedge this risk was to go long Euro-Dollar futures, that is to bet on the Federal Reserve having to start cutting rates again rather than sell equities in the midst of panic selling.”

“If you go long on Euro-Dollar futures as a hedge the moment the news flow hit, that hedge would have worked and I still think that that is the correct hedge to have in place,” Wood added.

On NBFCs

Wood said what the market wants to see in India is more aggressive action on the part of the authorities to clean up the issues in the NBFC sector in terms of the residential property market and in terms of all the stuck projects.

“I was last in India in December when fund managers in India were hoping for the announcement of the equivalent of an Indian TARP like the TARP the US announced back in the financial crisis.”

“There have been various incremental policy actions announced by the RBI but we still haven’t got what I would call the big banana like TARP policy which would make the market think that this whole issue has been sorted out.”

“So unfortunately I don’t see that policy catalyst in place yet and the current Indian government remains very reluctant to bail out parties on a wholesale basis. So the policy remains more incremental than the big banana that the stock market wants to see.”

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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

Coronavirus cure difficult to emerge; likely to spread further, says Financial Times’ Martin Wolf

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

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Martin Wolf, chief economics commentator at Financial Times is of the belief that the coronavirus will hurt the global economy in the second quarter as well.

“My view has been not to have expectations about what could happen because we don’t know but it seems very plausible that it could spread. It is a very difficult disease because you are infectious before you are symptomatic. So unless you stop everybody from moving, it is likely to spread,” said Wolf.

“Now that it is in Europe, it is going to spread across Europe and that almost certainly means it is going to spread across the world because Europe is completely integrated into the world. We have to hope that the disease will die down in the summer, we don’t know but it is clear now that this is going to be a significant factor for the world economy,” he said in an interview with CNBC-TV18.

“Everybody expects this first quarter to be very bad and I would say now it seems likely that Q2 will also be very bad; lots of movement will stop, tourism will be down, trade will be down and Europe is a very important continent from this point of view. So, I would expect it to be a significant jolt,” he added.

Now real question is would the world economy recover in Q3 and Q4 as the disease dies down but at this stage we don’t know. Moreover, we don’t know what the fatality rate will be,” he said.

According to him, it is always difficult to find a cure for virus,” What I have been reading suggests that cure is not likely to emerge quickly. They of course know the structure of the disease but creating a cure that works seems to be quite difficult. So, I am assuming it is not going to be available in the next couple of quarters and it is therefore likely to spread further,” he added.

When asked about India and growth slowdown, he said, “I do think if nothing changes very much, Indian policy remains sort of where it is and the world is sort of where it is, India’s growth is not likely to be above 7 percent and is more likely be around 6 percent.”

“If everything goes roughly where we are now without any huge negative shocks, if India is to grow much faster than that, which means it is going to grow 2.5-3 times as fast as the world economy then some things have to improve a lot and the most obvious one is export competitiveness has to improve and that is a point that Arvind Subramanian has been making. You cannot have rapid growth without exports growing at least as fast as your economy,” he noted.

“Indian exports have to start growing at 8 percent a year or so, which is nowhere near what is happening and for that to happen, you need massive improvements in competitiveness, attraction of foreign investment. So, you have to do almost what China did. So, that needs change, a purposeful change,” he said, adding that it is not just about export competitiveness, it is also about the infrastructure and the other things, the skills etc.

“So, I am assuming that without those policy changes, particularly with the instability we are seeing now, India’s growth is probably going to be in the 5-6 percent range and that is very depressing because that means employment growth is not adequate. If employment growth is not adequate, you have got a lot of unhappy people here –so, where does that lead Indian politics? It could lead it to a very dark place. So it is very important that policy improves if India is to remain stable, prosperous and happy, which is what I want it to be,” he further mentioned.

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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