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It looks like a delayed reaction of the Street, which is now understanding that prudent policies are good for the economy. No real fireworks should be expected from platforms such as Budget?
Nilesh Shah: Undoubtedly. Yesterday’s Budget was citizens’ pride and peers’ envy. Markets probably look at global clues as markets fell down globally day before yesterday but yesterday some of the results in the global market pulled the market up. Then we also came back to our fundamentals. The Budget or the interim budget as they call it was way beyond expectations of the market on fiscal consolidation. It still delivered inclusive growth and infrastructure investment. Net-net this is citizens pride and peers envy vote on account.In fact, in the last hour of trade yesterday, you were saying that the Street may not have appreciated enough. The bond market has better understanding and that is why the yields tanked almost 10 basis points yesterday. Lower borrowing number, good capex is a mixture and disinflationary in nature could take rates lower in coming months.
Nilesh Shah: So when you make such a statement, and since I can wear both the hats of bond and equity markets, let me make a statement. Bond fund managers are real Bonds. They are smart.
That is a good point. And you have been on both sides. So you understand the bigger picture. What does lower interest rates and lower inflation mean for market valuations right now?
Nilesh Shah: Basically, lower inflation provides us macroeconomic stability. And a lower interest rate this time is unlikely to benefit India Inc. as much because we are not really leveraged. The debt equity ratio is very low. But it does help on the valuation side. Lower interest rate means higher valuation in the equity market. There are concerns on India’s premium valuation.
But if our local interest rate comes down to that extent, valuation gets re-rated. Eventually over a period of time, this will push rating agencies to upgrade India’s rating. We are going back to the path of fiscal prudence after Covid. We have not given stimulus like mad as it happened in some of the other developed nations. We gave more guarantees and which were not encashed.
This has kept our debt to equity ratio or debt to GDP ratio for the country under check. My feeling is that in the near term, it gives macroeconomic stability. Over the medium term, it helps in reducing India Inc.’s interest cost and equities valuation. Eventually it should result in the rating upgrade for India, how long rating agencies will have moody nature and poor standards.
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