Thought for the day
"The only thing to do with good advice is to pass it
on. It is never of any use to oneself."
-
Oscar Wilde (Irish, 1854-1900)
Word for the day
Agog (adj)
Highly excited by eagerness, curiosity, anticipation, etc.
(Source: Dictionary.com)
Malice towards none
Reports
suggest that the government is considering Exit Exam for MBBS doctors.
What
problem does this exam seek to solve?
Can't Munna
Bhai pass this exam also by proxy?
Do we have Munna
Bhais only in Medical profession?
To cut or not to cut is not the question
The GDP date for 4QFY15 has further queered the pitch for Gov.
Rajan.
The government authorities are claiming that the data shows that
the economic recovery is taking off and rate cut at this point in time will
provide the necessary escape velocity. The finance minister himself has
publically coaxed Gov. Rajan to cut rates to help the struggling industry and
infrastructure developers.
The independent economists however are discounting the recent GDP
data as accounting miracle that is not fully corroborated by the evidence
available from other sources like corporate financial results, consumption
data, industrial production numbers, credit data and other lead indicators. The
general view is that economy is still taxing slowly towards the runway and take
off is at least couple of quarters away.
The analysts community is mostly expecting a 25bps cut followed by
a long pause. Flipping through various reports, I could find little reasoning
behind this expectation. Most of it is "just like that".
In my view, the rate decision of Gov Rajan this morning will be
driven more by "INR" than "Industry".
Given the elevated level of stress on corporate balance sheets, as
evident from the FY15 annual accounts, low demand environment, and poor credit
growth despite comfortable liquidity conditions threeo things are more than
clear - (a) few bankers want to take risk of giving fresh money to a stressed
corporate or even a new project; (b) few corporate balance sheet will justify
further lending even if rate fall by 50bps; and (c) some aggressive bankers may
be chasing households with high priced relatively small ticket consumer loans,
compromising prudent norms and laying foundation for a credit bubble 4-5yrs
down the lane.
Under these circumstances a 25bps repo cut would be mostly
redundant.
Gov. Rajan would not like to make a bigger cut, as it would risk
further strengthening of already strong INR; force more liquidity infusion for
buying USD; and thereby weakening the fight against price rise.
From market perspective I will not be too enthusiastic about a
rate cut this morning. A sharp rise in financials may provide some short
selling opportunities.
A cursory scrutiny of the FY15 annual accounts of profit making
private sector undertakings shows a distinct trend of tax refunds and interest
on tax refunds. State Bank of India alone reported Rs10bn interest income on IT
refunds.
The official claims of no Tax Terrorism need to be closely
examined by analysts in light of this trend. An informal interaction with many
large tax payers and PSU managers suggests that the practice of forcing tax
payers to pay higher advance tax to achieve tax collection targets is still
prevalent. This "terrorist" way of deficit financing belies the
government claims of "peace" with tax payers. Given that the rate of
interest payable on IT refunds is higher than the present 365d treasury bill
yields, it also does not make much financial sense.
No comments:
Post a Comment