Tag: Sonal Varma

Inflation may worsen to surpass 8% within 6 months: Nomura

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

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Central banks around the globe are focused on removing the pandemic era low rates and excess liquidity. The Monetary Policy Committee’s minutes of the meetings that came yesterday also focused on getting rid of the accommodative stance of the RBI and taming inflation.

To understand what to expect on rate hikes and inflation, CNBC-TV18 caught up with Sonal Varma, Managing Director and Chief Economist-India and Asia ex-Japan, Nomura Financial Advisory & Securities, and Suyash Choudhary, Head-Fixed Income, IDFC MF.

Varma is of the view that inflation has not yet peaked and can go above 8 percent within the next six months. For FY23, she expects the headline inflation to be at 7.23 percent. She stressed the need for policymakers to focus on underlying inflation, which is running above 6 percent.

Also Read: RBI opted for off-cycle rate hike to avoid tougher action in June MPC meeting: Shaktikanta Das

“The demand and supply-side pressures are still rising. So we do not think inflation has peaked. It potentially goes close to 8 percent, even perhaps slightly above 8 percent within the next six months. On average, though, which is more important than a particular monthly print, for FY23 we are looking at about 7.2 percent on the headline, inflation. So momentum is still rising and risks to inflation are still to the upside,” she said.

Varma doesn’t believe that RBI wants a repo rate at pre-Covid levels. She said, “The minutes clearly emphasize the need to frontload the rate action and get back to the pre-pandemic level, which is 5.15. So we are building in 50 basis point hike in June, followed by a 35 in August.”

Meanwhile, Choudhary begs to differ with Varma on this. He feels the RBI intends to bring back the repo rate to pre-pandemic levels. He explained that the repo rate cycle will peak off at 5.5 percent. He pointed out that while the repo rate is rising, 5-year G-Sec is stuck.

“They (RBI) want to get to a certain level of neutral policy rates fairly quickly. It looks like they are broadly placing that at the pre-pandemic repo rate of 5.15 percent. So probably over June and August with a small chance that entirely June they want to get there,” Choudhary said.

He expects government bond yields to stabilise in the coming months. “We do expect over the next one year, maybe not in the next six months government bond yields may probably stabilise, corporate bond spreads could somewhat widen,” said Choudhary.

For the entire discussion, watch the accompanying video

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

From SBI’s Dinesh Khara to Nomura’s Sonal Varma: Who said what on India’s 17-month high retail inflation

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

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India’s retail inflation or the Consumer Price Index (CPI) has soared to a 17-month high of 6.95 percent in March owing to rising prices of essential food items like ‘oils and fats’, vegetables and protein-rich items such as ‘meat and fish’. Staying above the 6 percent mark for the third consecutive month, the CPI has topped the Reserve Bank of India’s (RBI) upper retail limit of 4 percent with a 2 percent margin on either side. On a quarterly basis, the retail inflation during January-March works out to be 6.34 percent.

Last week, the RBI had raised the retail inflation projection for the current fiscal to 5.7 percent from an earlier forecast of 4.5 percent. While the central bank hopes for moderation in prices of cereals and pulses on a likely record harvest of the winter season (rabi) crop, the excessive volatility in global crude oil prices since late February amid geopolitical tensions remains major risks to “any projection of growth and inflation”.

CNBC-TV18 spoke to several economists, top bankers and market analysts on India’s inflation situation and here’s what they said:

Dinesh Kumar Khara, Chairman, SBI: “Inflation is also a function of multiple factors, which are observed at a point of time. It is something which was most expected considering the fact that the way the global factors were operating, so it was more or less in line. I hope that with the global factors, getting addressed more in terms of the Russia-Ukraine war, I think, perhaps, it could have an impact on the overall inflation going forward. But nevertheless, what you mentioned in terms of the negative interest rate for the depositors, sometime, last quarter itself, we had started increasing our term deposit interest rates.”

#CNBCTV18Exclusive | Dinesh Kumar Khara @TheOfficialSBI tells CNBC-TV18 that SBI has started raising the term interest rate. Co expects FY22 loan growth to be in double-digits pic.twitter.com/rkYCtuoBJe

— CNBC-TV18 (@CNBCTV18Live) April 13, 2022

Arvind Sanger, Managing Partner, Geosphere Capital Management: “Inflation is going to be a persistent problem globally, and India is no exception. And, frankly, RBI has been one of the most dovish, amongst the major central banks in the world, in terms of not moving. And now that the WPI has already been giving us warning signals here, it was running in the mid to low teens; 13-15 percent in the last several months and now CPI is starting to accelerate.”

Nilesh Shah, MD, Kotak AMC: “What debt market will be looking forward to is the trajectory of inflation, does it remain elevated above RBI’s target level of 6 percent or does it start coming down as expected by the RBI, which is guided towards 5.7 percent inflation for FY23.”

#OnCNBCTV18 | Debt market has priced in 4-5 rate hikes. Important for investors to be under leveraged at this juncture, says Nilesh Shah of Kotak AMC pic.twitter.com/xKYfV04BJK

— CNBC-TV18 (@CNBCTV18Live) April 13, 2022

Sonal Varma, MD & Chief Economist-India, Nomura Financial Advisory & Securities: “Inflation was already tracking above 6 percent For FY23 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 on 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.”

Ananth Narayan, Professor, SPJIMR: “It does look like we are going to have repeated 6 percent plus, 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. Granted that we should be controlling inflation, that is the primary mandate of the MPC. Granted that remains the biggest important decision to be made but the problem with the monetary policy framework is it has become dangerously simplistic. The framework gives the impression you can keep CPI within a range merely by changing the repo rate. Macroeconomics is far more complicated than that, as the last two decades have shown and this is dangerously simplistic.”

Rajnish Kumar, Former Chairman, SBI: “Repo rate, RBI has been holding but this time the stance has been different, it has been changed and if you look at the 10-year G-Sec, if you take representative 10-year G-Sec is representative and not the repo rate, then we have seen almost 125 basis point increase in last 15 months. So, that is a pointer itself that yes, there is an inflation building up and today, when you talk to anybody, this is one of the hottest topics about inflation. It is not only for the consumer, but for all the industry and we are seeing upward pressure on the prices, but again, not so much as to demand-driven, but the supply side driven.”

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

Supply disruptions here to stay; impact of Russia-Ukraine war to vary across economies

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

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As soon as war broke out between Russia and Ukraine, the world was confronted with many an issue on all fronts. One of them being supply disruptions, which G Padmanabhan, Former Bank of India non-executive chairman says is here to stay.

“A lot of uncertainty has come into the whole scenario because of this. It all depends upon what’s going to be the end game. As we speak, I think there is some reconciliatory talks that are happening. So it depends on how long it is going to prolong and if it prolongs too long, then I think the supply disruptions are here to stay; it will become a bigger problem,” he said.

Also Read: Russia-Ukraine war: Impact of US, EU sanctions on Russian banks

To counter Russia’s aggression, the Unites States, European Union (EU) announced sanctions on Russia. However, Padmanabhan believes the full extent of the fallout of these sanctions will become clear once details on which banks are being sanctioned emerges.

“It all depends upon the details. If you compare it with what happened in Iran, it was almost impossible because the entire country was sanctioned and any of the American entities or any of the European entities or any other entity in the world, for the reason that US dollar is the reserve currency and if any of the other countries, institutions also go against the US sanctions, there could be implications on these institutions dealing with the US dollar also,” he mentioned.

“But if it is going to be selective, and the banks which are taken out of the SWIFT system are also going to be these banks who are going to be sanctioned, then for the other banks, it looks as if the transactions will go on. But we need to wait and see the details,” he said.

Also Read: Explained: What is SWIFT and what does shutting Russia out entail?

Sonal Varma, MD and chief economist – India and Asia Ex-Japan, Nomura Financial Advisory and Securities (India) Private Limited too concurs, and adds that there could be a big economic hit for Russia this year due to sanctions and withdrawals. She says there are several economic implications for Russia, including loss of confidence, and fear of withdrawal of money from banks.

“This is a significant economic blow on the Russian economy in terms of the loss of confidence, risk of bank runs, as people withdraw money from the banking system. The sanctions, and just the broader isolation of Russia is going to negatively impact the investment outlook there,” she said.

“So despite there being certain carve outs, I think the combination of the sanctions, the confidence effects, the risk around the financial sector broadly do suggest a big economic hit for the Russian economy this year,” she added.

Also Read: Russia-Ukraine War: How global cos including Apple, Google, Twitter and Starlink reacted

She says big investors are allegedly taking money out of Russia. But the impact of this war will be different across geographies, she adds. As much as 40 percent of the gas to the European countries comes via Russia, but direct linkages of Russia to the US and Asia is quite small, she explains.

“We have heard some big foreign investors taking their money out from the country. The impact is going to vary across economies. So the EU in general, and a lot of the Eastern European countries, which have a close trade and financial linkage with Russia, the growth impact there will be quite substantial alongside a big hit on inflation, because nearly 40 percent of the gas comes via Russia. So it does put the ECB in a tricky spot. But if you move outside Europe, for instance, the US, the direct linkages are quite small. For most of Asia as well, the direct impact from Russia is quite small,” she said.

Also Read: Russia-Ukraine crisis: Mark Mobius says conflict a side show to US Fed rate hike

However, higher inflationary pressures and risk of weaker export growth in Asia is a cause for concern, says Varma. She expects CPI inflation to come in at 5.8 percent in FY23.

She said, “For Asia mainly, it means higher inflationary pressures, potentially in the near term and also risk of a weaker export growth in the second half of the year, particularly if Europe sees a slowdown. For India, the shocks in specific pockets of energy can actually be quite substantial, therefore putting the pressure on both current as well as fiscal accounts.”

“We haven’t changed our forecast. We’re still looking at 7.8 percent in FY23. If this persists and sustains, there would be a downside risk. Inflation – we’ve been in the camp that it is going to surprise on the upside for many reasons. This only adds to that view. So we’re looking for CPI inflation to average around 5.8 percent in FY23, so more than a percentage point above the Reserve Bank of India’s (RBI) projections,” she said.

Watch the video for the full interview.

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

Budget 2022: Market expects growth push as global financial tightening looms

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

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Finance Minister Nirmala Sitharaman will be presenting her fourth Union Budget today, on February 1, for the fiscal year 2022-23. CNBC-TV18 spoke to Jahangir Aziz, Head of Emerging Markets Economic Research and Commodities, JPMorgan, and Sonal Varma, MD and Chief Economist- India and Asia Ex-Japan, Nomura Financial Advisory and Securities, to understand what measures would help the economy and also figure out what their expectations from the Budget are.

Aziz expects growth to be around 9 percent. According to him, the amount of resilience that emerging markets (EMs) have toward the US Fed tightening will act as a major headwind for them.

He said, “We expect growth to be around 9 percent. So, broadly in the ballpark, the big sort of headwind is whether or not EMs generally, but India specifically, whether it will be resilient to the kind of global financial conditions- tightening, that one is fearing.”

Aziz believes a key determining factor in this fiscal will be the impending rate hikes. “In a year in which global financial conditions are set to tighten very sharply as we go through 2022, we have seven rate hikes between March of 2022 and March of 2023,” said Aziz.

Also Read: Budget 2022 Editor’s Take: What market expects from FM Nirmala Sitharaman

Meanwhile, Varma believes some amount of welfare is needed. She believes a conducive environment that is created with the help of private investment will be the perfect set-up to generate jobs.

“We need to create jobs. So if you want to create jobs, you can create the environment for private investments to pick up but at the same time, the push that we have seen on the capex, I am in the camp that this push should continue going forward as well. That should be a priority going forward,” said Varma.

Also Read: Budget 2022: Prashant Nair lists out expectations on tax front

In terms of government’s divestment target for FY23, Varma said, “For the next financial year, there is the asset monetization pipeline, and it will be good to get more clarity on what are the different projects that the government’s different departments or ministries are looking to monetize; Also going a bit early on, with respect to the planned disinvestments rather than punching it all at the end will give greater confidence in the government’s ability to actually meet the targets that they set.”

For the full interview, watch the accompanying video.

For all the latest updates on Union Budget 2022, follow our LIVE blog here

For full coverage of Union Budget 2022, click here

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

Indianomics: Experts decode GDP downgrades; say pent up demand to boost Q2

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

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The season for gross domestic product (GDP) downgrades appears to have begun. Nomura was the first to lower the FY22 India GDP forecast to 12.6 percent from 13.5 percent. Now JPMorgan has lowered their forecast to 11 percent from 13 percent and UBS has lowered to 10 percent from the 11.5 percent earlier. The reasons are obviously the COVID surge and resultant restrictions imposed by several state governments.

Incremental daily cases, which had fallen from about one lakh a day in September 2020 to 10,000 a day in February, rose to 15,000 on March 1 then to 35000 on March 15, 60000 on March 25. April 1 it was 90,000, April 4 it was 1 lakh, April 10 it was 1.5 lakh and April 15 it was 2 lakh. GDP growth as of early end march was confidently expected to break from the 4 year old declining trend to post a robust 10.5-12.5 percent growth and settle into a near 7 percent thereafter.

But the surge in COVID cases has led to doubts over growth. Simultaneously other clouds are gathering. The rupee which was steady between 72.5 per dollar and 73.5 per dollar slided to 75.3 in just 5 trading sessions.

Foreign funds who were pouring into equity market in February and March turned sellers.

Are they worrying that the unrelenting surge in corona cases is likely to rock Indian macros. Also is there a worry that RBI’s money printing will worsen India’s inflation and push up yields. Headline inflation is anyway expected to remain over 5 percent while core inflation is sitting at 6 percent. Wholesale price index came in scarier.

Hitendra Dave, Head of Global Banking and Markets at HSBC India, Samiran Chakraborty, Chief Economist at Citi and Sonal Varma, Chief Economist at Nomura India shared their views.

“We need to watch how the infection cases pan out. The stringency of the lockdown is much lower and the focus is on testing and vaccination,” said Varma.

“We have seen last time around that pent-up demand always – to some extent – catches up and the second quarter growth would be better than what we were anticipating before,” Chakraborty mentioned.

For 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