- What's in store for the rural economy going into FY25?
- How will the upcoming #FOMC impact the budget?
Niraj Shah speaks to HSBC's Pranjul Bhandari on 'The Portfolio Manager'. #NDTVProfitLive
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- How will the upcoming #FOMC impact the budget?
Niraj Shah speaks to HSBC's Pranjul Bhandari on 'The Portfolio Manager'. #NDTVProfitLive
_______________________________________________________
For more videos subscribe to our channel: https://www.youtube.com/@NDTVProfitIndia
Visit NDTV Profit for more news: https://www.ndtvprofit.com/
Don't enter the stock market unaware. Read all Research Reports here: https://www.ndtvprofit.com/research-reports
Follow NDTV Profit here
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Instagram: https://www.instagram.com/ndtvprofit/
#ndtvprofit #stockmarket #news #ndtv #business #finance #mutualfunds #sharemarket
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00:53 - Well, thanks for tuning into this special show,
00:59 Budget 2020 for the takeoff.
01:02 In all our conversations from Monday,
01:05 we're talking about this week
01:07 as arguably being the most important week for risk assets,
01:12 because it's the week of FedSpeak
01:13 and it's the week of budget and in India in particular,
01:17 while the question mark remains
01:18 about whether this is a vote on account,
01:19 if the 2019 experiences anything to go by,
01:22 this may be a lot more than that.
01:24 Who better to put all of this into perspective
01:26 and the budget math into perspective
01:28 than Pranjal Bhandari of HSBC.
01:30 Incidentally, HSBC has also come out
01:32 with India's first flash PMI numbers.
01:34 So we'll talk a bit about that as well,
01:36 but Pranjal, great having you.
01:37 Thanks for taking the time out.
01:39 I'm just trying to understand whether you believe
01:42 that this could be a budget
01:43 which could dwell a lot more on fiscal consolidation
01:47 and therefore do we see some moderation
01:50 in the impetus that the government has hitherto given
01:54 in the past few budgets,
01:55 predominantly on infrastructure and CapEx,
01:57 but maybe to some other areas as well.
01:59 Yes, I think I agree with you there,
02:03 but it's in line with what the government
02:05 has been talking about in the last couple of years.
02:07 It's not just something only for this year.
02:10 I think the general sense of this government
02:12 is not focusing on the volume of spend,
02:15 but the quality of spend.
02:17 So our sense is that they'll bring down the fiscal deficit
02:20 in line with the consolidation path this year
02:23 and then next year again,
02:24 and overall they'll bring down
02:26 the overall expenditure as well.
02:28 But within that overall expenditure pie,
02:29 they'll improve the quality of spend,
02:31 moving away from current expenditure
02:34 more towards capital expenditure.
02:36 I think that has been a theme of this government
02:38 and it'll continue to be so.
02:40 Fiscal discipline, fiscal consolidation,
02:42 but high quality of spend.
02:44 - Okay, Pranjal, when the last budget came out,
02:47 I remember you were amongst the first ones
02:49 to talk about this quality of spend,
02:51 about the fact that the government
02:52 has not doled out freebies,
02:54 but instead spent money where it still benefits
02:57 the rural household, but results in CapEx.
02:59 So my question is, will we see moderation
03:02 of any key capital expenditure,
03:06 nation building related themes,
03:08 or do you think both can happen parallelly?
03:11 Because I was trying to think of avenues for revenues,
03:14 and tax revenues being there, yes,
03:16 but disinvestment revenues have largely been absent
03:19 in this fiscal.
03:20 So how does it auger for FY24?
03:23 And will there be some material references
03:25 made to FY25 numbers,
03:27 or do you reckon the best will be kept for July?
03:30 - Well, look, my sense is that whatever budget we get
03:35 on the 1st of February is largely the budget for the year.
03:39 I don't really foresee too many changes
03:42 when we see another budget in June, July.
03:44 And the big reason for that is that
03:46 there are very limited contours
03:47 that the central government has to fiddle with.
03:50 It has to bring down its fiscal deficit
03:52 from 5.9% in FY24 to 4.5% by FY26.
03:57 This is the middle year, so it'll bring it down
03:58 to perhaps 5.3% of GDP.
04:01 So when you're bringing down the fiscal deficit,
04:03 you don't have space to do too much extra spending
04:05 here or there.
04:06 My general sense is that in FY24,
04:09 CapEx spend was 3% of GDP.
04:11 In FY25 also, it'll stay about 3% of GDP.
04:15 So unchanged capital thrust.
04:17 In rupee terms, there could be some increase.
04:19 So from 9 trillion to 10 trillion rupees,
04:22 between FY24 and FY25,
04:24 which is about a 10.5% year-on-year increase.
04:28 So this is still a very good number at a time
04:30 when fiscal deficit is coming down,
04:32 even though it's not as good as the last few years
04:35 we've been seeing, closer to 30% year-on-year growth
04:37 in CapEx.
04:38 So I would say they'll maintain CapEx thrust,
04:40 but they can't accelerate it
04:42 at a time of fiscal consolidation.
04:44 But I just want to take a step back here.
04:46 Actually, the real story of FY24
04:49 wasn't central government doing CapEx.
04:51 The real story was state governments doing CapEx.
04:53 And a lot of people missed that out.
04:55 You know, state governments,
04:56 which were literally not spending in the pandemic
04:59 and the one or two years after pandemic,
05:02 suddenly started spending in FY24,
05:04 and CapEx spend rose 45% year-on-year.
05:09 Very strong numbers.
05:10 And I think that has been a huge source of growth,
05:13 particularly construction jobs,
05:15 particularly rural demand over the last 12 months.
05:19 So we should always think of CapEx
05:21 as center plus state combined.
05:23 And if you combine the two,
05:25 my sense is we are at our best
05:26 in terms of growth rate right now.
05:28 Next year, the growth may not be as high,
05:31 but in terms of percent of GDP,
05:32 the thrust will be maintained.
05:34 Got it.
05:35 And absolute numbers also might look okay.
05:36 Prajal, maybe I thrust a few things
05:39 that were top of my mind at you at the start.
05:41 Let's try and understand what is it
05:43 that you are watching out for the most
05:45 when it comes to Feb 1st?
05:46 Well, a lot of things,
05:49 as in, of course, the fiscal consolidation part.
05:52 Still, there are pockets who say
05:54 that there will be some slippage
05:56 because this is a pre-election year.
05:58 That is not our base case.
05:59 But again, we'll have to watch out for that.
06:01 That how well the government sticks to its 5.9 for FY24,
06:05 and next year, does it really bring it down to 5.3,
06:08 or does it go with slightly higher fiscal deficit,
06:10 like 5.5?
06:12 So I think one would be this.
06:13 The second, which I think the bond markets
06:15 will be really focused on,
06:17 is the amount of borrowing
06:18 that the central government will do.
06:19 See, if you're going to bring down the fiscal deficit,
06:22 then your borrowing also should come off.
06:25 And if it comes off in a meaningful way,
06:27 then I think that'll be very positive for the bond market.
06:30 So my sense is bond market is thinking
06:32 about a 15.2 trillion borrowing in FY25.
06:35 If it's any number which is lower than 15.2 trillion,
06:39 and there are some ways that can happen,
06:41 if RBI and the government do switches,
06:44 then I think that'll be extremely positive
06:45 for the bond market.
06:46 I think that's something we want to hear about.
06:49 And the third is CapEx.
06:51 You know, the BE, the budget estimate for FY24
06:54 was 10 trillion.
06:56 We think they'll end the year
06:57 slightly lower at 9 trillion.
06:59 What is the BE going to be for FY25?
07:03 So, you know, I look out for these three.
07:05 But again, I think we have to also look at state governments
07:09 and I'm sure we can talk about it later.
07:10 We have to look at what RBI will do,
07:13 you know, after the budget is over.
07:15 - Yeah, so I'll come to the RBI in a moment, as you said,
07:17 but since you've dwelt upon the state government part
07:19 a couple of times already,
07:21 I'm just trying to understand in terms of numbers,
07:24 you laid out the broad-based numbers,
07:25 but is this something that came
07:28 as a bit of a surprise to you as well?
07:30 Because as you said, post-COVID, there's a bit of a pause.
07:32 And does this, in some sense, Pranjal,
07:34 give a bit of a leeway to the central government
07:37 in its budget?
07:38 Because hitherto, the hope was that,
07:40 okay, post the central government doing the CapEx,
07:43 private CapEx hopefully will pick up its mantle.
07:46 While that didn't happen,
07:47 if the state government CapEx is very high,
07:49 in some sense, does that come at a bit of a helping hand
07:54 to the central government
07:55 when it makes the budgetary allocations?
07:58 - Absolutely.
07:59 As in, if you look at only the central government,
08:02 then increasing CapEx by about 20, 25% year on year
08:05 in FY20-4 was meaningful,
08:09 but maybe it would not have been meaningful enough
08:11 if you think about the backdrop.
08:13 The backdrop was a early new year.
08:15 The rains were not good.
08:17 Rural crop production wasn't very good.
08:20 Rural incomes were not very good.
08:22 And I think the fact that the state government zoomed in
08:25 with such huge CapEx spending
08:27 provided all of this construction activity
08:29 around the country that many rural Indians
08:32 who were not able to make much money
08:33 out of like sewing activity
08:35 actually just took off for the construction sector.
08:38 And you can track this data.
08:39 The Aadhaar Enabled Payment System, AAPS,
08:42 tracks rural remittances from urban India to rural India.
08:45 And that has soared quite meaningfully
08:47 from September onwards.
08:48 So there has been some helping hand to rural incomes
08:52 on the back of this CapEx,
08:55 which is an ideal thing for a pre-election year.
08:58 So this has been a good backdrop.
09:00 And I think that's one of the things
09:02 which has not put so much of pressure
09:04 on the central government to do some rural solve,
09:07 to do some rural scheme.
09:09 True, we will find some small scheme announced
09:10 on 1st of February,
09:11 but my sense is that it's not like a government
09:15 that is dealing with rural distress in a big way.
09:17 - Yeah.
09:19 Okay, so two questions that I'm trying to think,
09:21 which one should I ask first?
09:22 Okay, let me ask this rural question first
09:23 because the last time that we spoke,
09:25 you mentioned that at the margin,
09:28 in some parameters,
09:30 you had started to see some positivity
09:33 in the rural income/rural spend as the case may be.
09:37 And it was not all bad at the rural end,
09:40 the way the market was perceiving.
09:41 I believe this was a conversation that we had sometime
09:43 in November, Pranjul, if I'm not wrong,
09:44 or maybe early December.
09:45 I would love to understand from you
09:47 this belief that some quarters have
09:49 that the government will have to,
09:51 or will go ahead and do some spends
09:55 on the rural side.
09:56 They shied away from it in the last budget.
09:58 Do they really need to,
09:59 or do you believe that rural by itself
10:01 is showing a bit of a cyclical pickup?
10:03 - Well, it's a toss up,
10:05 like on perspective of what will the central government
10:09 announce, it could be anything.
10:11 But my sense is the pressure is not immense
10:13 to announce a very big package.
10:15 And I think, look, I'm not for even a moment
10:18 saying that rural incomes are doing extremely well.
10:20 You know, they are not strong
10:22 because it is a El Niño year, right?
10:24 But it could have been even worse
10:26 given how much current production was down.
10:28 And it has not been that bad
10:30 because there have been remittances
10:32 out of the construction sector into rural bank accounts.
10:35 And rural Indians have a little more cash
10:38 in their bank accounts right now
10:39 than anyone would have imagined,
10:41 or they had about six months ago.
10:44 So I think things have been slightly better
10:46 for rural Indians on the back of construction.
10:49 Also, I think I mentioned this earlier,
10:50 you know, generally speaking,
10:52 financial cycles, bank lending cycles,
10:55 construction cycles go hand in hand.
10:57 They can be about like, you know,
10:58 three year or four year kind of cycles.
11:01 And I think we are in an up cycle there.
11:03 There is construction activity,
11:05 there is bank demand, you know,
11:07 supply of mortgages, people are taking loans.
11:10 All of that in a way provides an ecosystem
11:12 in which, you know, you need people to come
11:14 and work in this construction sites
11:16 to build out all kinds of real estate
11:17 or even infrastructure,
11:19 which the government is trying to focus on.
11:21 And that is a buffer for rural incomes
11:23 at a time, rains can be volatile.
11:25 Okay, fair call.
11:28 The other aspect, Pranjal,
11:29 like I mentioned that a lot of,
11:30 I mean, non-budget,
11:31 but I'm just trying to understand from your perspective,
11:34 the long hoped private CAPEX uptake
11:37 in select sectors may be happening.
11:39 Overall, I do not know what your view is,
11:41 but my question is,
11:42 do you anticipate that this combination
11:44 of central government pushed CAPEX plans
11:47 plus what you mentioned,
11:47 state government, the real story,
11:49 the state government CAPEX in 2024 or FY25,
11:52 FY24 is the case maybe.
11:53 Do you reckon at some point of time
11:55 that leads to private CAPEX
11:57 really being visible across the board?
12:01 Look, you know, all of this provides a helping hand,
12:05 but you need other parts of the ecosystem
12:07 to also be cooperative.
12:09 And the part that has not been cooperative
12:11 is macro certainty.
12:12 Around the world, you know,
12:14 we have commodity prices,
12:15 which go up and down.
12:16 We are still not sure when central government,
12:19 when central banks of different advanced economies
12:22 will really start cutting rates.
12:24 We have a very sort of a,
12:27 not a clear handle on where global growth will go.
12:31 These are not times in which private CAPEX
12:35 really takes off anywhere in the country.
12:37 And we have to keep that backdrop
12:38 at the back of our minds.
12:39 It's great that the government is doing CAPEX.
12:41 You know, we need all of this infrastructure build out,
12:44 but that doesn't automatically mean
12:45 private CAPEX will come in.
12:47 Although I must say,
12:48 I do believe that if the macro environment
12:50 does stabilize in the next couple of months,
12:54 then, you know, we have a good chance
12:55 for private CAPEX to take off.
12:56 But then there's just so many uncertainties out there,
12:58 right?
12:59 Like Red Sea issue, so many elections.
13:03 So we just, I think we'll have to be patient
13:05 until it really takes off.
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17:24 - A lot that can be done,
17:27 you know, these can be streamlined
17:29 in a very meaningful way.
17:31 But, you know, we have to see if that happens,
17:34 as in that would be on top of my wishlist.
17:36 I think a lot of fiscal saving can happen
17:38 by just streamlining some of these subsidies.
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21:25 - I'm not responsible for the price rise.
21:29 Price is a point which demand and supply
21:32 in the market decides.
21:34 In terms of me joining in Jan, 2023,
21:38 and the changes post that,
21:41 a couple of things we can talk about there.
21:44 One is in terms of reintroduction of products
21:47 and derivatives, some product specs changes there,
21:52 and change of logo and brand, brand building efforts,
21:57 and most importantly, employee building effort.
22:01 In any organization, the success or not success
22:06 depends upon the employees,
22:09 because they are one of the most important stakeholders.
22:12 Whatever we have done, we have done to ensure
22:16 that the employee morale is very high,
22:18 they are very energetic, enthusiastic,
22:21 and they want to willingly contribute
22:23 for the growth of BSE.
22:25 the one and one simple point which...