Kotak Mahindra Bank: Corporate profits steady, but demand risks loom: Upasna Bhardwaj

“If we look at the whole corporate profits data, which alone does not yet suggest any major slowdown. But clearly, if I look forward, there are some risks that are building up in terms of demand that could affect the business sector,” he says. Upasna Bhardwaj, Kotak Mahindra Bank.

First, let’s understand the second half borrowing program in terms of assumptions. Do you think the assumptions are in line with what bond market were you waiting?
Upasna Bhardwaj: Yes, absolutely. I think the numbers are not really surprising. 6.6 crore was the gross borrowing expected by the government. So they have stuck to the plans they had announced. Therefore, there is no surprise on the markets front.The loan number assumes a certain amount of fiscal buoyancy. Can I argue and say that at a time when the government’s capital spending is behind its committed schedule due to elections and other events, do you think the fiscal assumptions numbers could be a challenge in terms of its borrowing? real versus the assumed debt figures?
Upasna Bhardwaj: No, in fact, I think if we look at how fiscal deficit As a percentage of total BE numbers right now for the four months we have data for, they are at 17% of total budgeted numbers and that is lower than at the beginning of last year, at the same time.

Clearly, they have plenty of space and reserves to build. And I don’t really see the risk of any fiscal slippage. On the other hand, if you ask me, fiscal buoyancy remains strong and as a result of which there is, I mean, I would say if I were to put a bias on it, then there is a possibility, albeit marginal, of a lower fiscal deficit by the end of anus.

We’ll have to wait and see, of course, but overall I think these numbers are pretty realistic on the tax math front and that can be achieved. Therefore I don’t see any risk of slipping.
Current inflation, and I’m not looking at the CPI data, the WPI data, which is an indicator of economic activity, should one, and I’m being devil’s advocate here, which is 3% over the last six months, is it not an indication that the The wholesale end of the economy is slowing, the corporate part of the economy is slowing?
Upasna Bhardwaj: If you look at the overall corporate earnings data, that in itself still doesn’t suggest any major slowdown. But clearly, if I look ahead, there are some risks that are building up in terms of demand that could affect the corporate sector. Now, look, the wholesale side, of course, is an important reflection of what global commodity prices are like and the cycle, we know that prices have been quite low and that in itself is influencing wholesale prices, so that that is one side of it. The other side is of course retail inflation, which of course right now is being driven largely by food prices, so the deviation is more due to food, but overall commodity prices premiums are low and, therefore, that keeps non-consumers. food categories are pretty much under control.
So if the borrowing program is in line with what the market expected, then why have we seen a rally in the bond market and yields have fallen to a 30-month low?
Upasna Bhardwaj: No, that had already acted, I mean, we had already seen some type of market reaction until yesterday before the debt schedule. The announcement of the second half borrowing schedule came after market hours.

There was some kind of expectation, which was building up in the markets, from what I understood, that there might be a possibility of an announcement of a debt cut in the second half, below Rs 6.6 lakh crore and That was a reason for a demonstration to take place.

In fact, if you look at today’s openings in the bond markets, there is a slight element of disappointment because the other end of the curve has seen more supply when the markets expected that there should be more supply at the lower end. of the curve because that is where the greatest demand is.

Now, because demand is high at the shorter end of the curve, you would expect the shorter end of the curve to start rising much more than the far end of the curve.