ET Now In an interview with ET Now, Arvind Sampath, Head Treasury, Fullerton India Credit Company Ltd, shares his outlook on treasury. Excerpts:
ET Now: What do you expect from the quarter two GDP numbers slated to be announced tomorrow as also the fiscal deficit trend?
Arvind Sampath: On the GDP, our expectation is low fives. We think it will be above five, but more closer to 5.2-5.3%. In the medium term, we should cross 5.5% and move on ahead. The high frequency indicators like freight, auto sales, vehicle sales, cement and diesel are showing that the turnaround is there. But a full-fledged recovery with capital goods with investments will take at least 6 to 12 months. That is our reading. So the way we look at it is that the worst is over, number should bump up in and around five and we should look six months ahead for higher number.
ET Now: How critical is a rate cut to boosting this kind of recovery?
Arvind Sampath: It is supportive, but it is not the only thing. Supply side constraints and other machinery to work, approvals and other things are as important as rates. So rates are important. Our own reading is it is probably a little too early to expect it immediately in the December policy. We would look a little ahead to sometime mid of calendar 15 for easing in rates.
ET Now: How long do you expect the markets to have faith within India without any change in our fundamentals?
Arvind Sampath: A lot has happened already to convince the markets that the reforms process is in place and has started. That is enough. In terms of seeing it in terms of numbers, whether it is fiscal deficit, inflation or growth, that will take six to nine months to unfold. So the markets would continue to keep the faith.
ET Now: What kind of fiscal deficit numbers are you seeing for the government and the announcement this week?
Arvind Sampath: In the first half we crossed 82-83. So we should be thereabouts. It has been a story not of expenditure but of slightly slower revenue, which has caused the number to be slightly higher in proportion to where we are in the fiscal. We have lower fuel subsidies to look forward to, we have the possibility of asset sales and we have a 10% cut in terms of discretionary spending. So the cards are all there for meeting the targets in terms of the fiscal deficit and over the next few months we should be able to do that.
ET Now: So you do not expect the slowing GDP growth to impact revenue?
Arvind Sampath: The reason we crossed 82-83% was primarily because of large tax revenues and slower revenue growth, but looking ahead the effect on fuel subsidies would probably balance that out. Asset sales have seen a slow start and that could pick up given the news flow on that.
ET Now: How do you read the rate cut by China?
Arvind Sampath: It was broadly expected that some sort of initiative was needed. It is supportive for India, it is indicative that sooner or later rates would be eased here in India as well.
ET Now: Does the weakening of currency in most emerging markets and the relative strength of the rupee put us in a disadvantage?
Arvind Sampath: The dollar has strengthened almost 10% over the last three months. One of the effects that we saw was the oil price as a contra to that. Other currencies have weakened since they move broadly in tandem. This has impacted marginally on your export growth. But what is the main effect? The main reason is you had very strong inflows of $3 to $4 billion a month and these have been managed without appreciation. So the way to look at it is probably we base out at around 61-62 and then guide for a lower rupee in the next few months.
ET Now: What do you expect from the quarter two GDP numbers slated to be announced tomorrow as also the fiscal deficit trend?
Arvind Sampath: On the GDP, our expectation is low fives. We think it will be above five, but more closer to 5.2-5.3%. In the medium term, we should cross 5.5% and move on ahead. The high frequency indicators like freight, auto sales, vehicle sales, cement and diesel are showing that the turnaround is there. But a full-fledged recovery with capital goods with investments will take at least 6 to 12 months. That is our reading. So the way we look at it is that the worst is over, number should bump up in and around five and we should look six months ahead for higher number.
ET Now: How critical is a rate cut to boosting this kind of recovery?
Arvind Sampath: It is supportive, but it is not the only thing. Supply side constraints and other machinery to work, approvals and other things are as important as rates. So rates are important. Our own reading is it is probably a little too early to expect it immediately in the December policy. We would look a little ahead to sometime mid of calendar 15 for easing in rates.
ET Now: How long do you expect the markets to have faith within India without any change in our fundamentals?
Arvind Sampath: A lot has happened already to convince the markets that the reforms process is in place and has started. That is enough. In terms of seeing it in terms of numbers, whether it is fiscal deficit, inflation or growth, that will take six to nine months to unfold. So the markets would continue to keep the faith.
ET Now: What kind of fiscal deficit numbers are you seeing for the government and the announcement this week?
Arvind Sampath: In the first half we crossed 82-83. So we should be thereabouts. It has been a story not of expenditure but of slightly slower revenue, which has caused the number to be slightly higher in proportion to where we are in the fiscal. We have lower fuel subsidies to look forward to, we have the possibility of asset sales and we have a 10% cut in terms of discretionary spending. So the cards are all there for meeting the targets in terms of the fiscal deficit and over the next few months we should be able to do that.
ET Now: So you do not expect the slowing GDP growth to impact revenue?
Arvind Sampath: The reason we crossed 82-83% was primarily because of large tax revenues and slower revenue growth, but looking ahead the effect on fuel subsidies would probably balance that out. Asset sales have seen a slow start and that could pick up given the news flow on that.
ET Now: How do you read the rate cut by China?
Arvind Sampath: It was broadly expected that some sort of initiative was needed. It is supportive for India, it is indicative that sooner or later rates would be eased here in India as well.
ET Now: Does the weakening of currency in most emerging markets and the relative strength of the rupee put us in a disadvantage?
Arvind Sampath: The dollar has strengthened almost 10% over the last three months. One of the effects that we saw was the oil price as a contra to that. Other currencies have weakened since they move broadly in tandem. This has impacted marginally on your export growth. But what is the main effect? The main reason is you had very strong inflows of $3 to $4 billion a month and these have been managed without appreciation. So the way to look at it is probably we base out at around 61-62 and then guide for a lower rupee in the next few months.
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