“From a fixed income point of view, vote on account laid the path of fiscal glide path and that resulted into about 10-15 basis point of yield movement downwards,” says Nilesh Shah, MD, Kotak AMC.

For the market, there seems to be a bit of a recovery. At one point of time, it had dipped, but now it is recovering again, plus the fact that the bond deals have also moved in positively. What’s been your take away from the kind of changes that we have seen in the GDP forecast and the Governor talking about how we are at the last leg of managing inflation?
Policy is as per the expectations of the market, no change in the repo rate. Now Street estimates probably is little lower than the RBI’s estimate of GDP growth and little higher on inflation than RBI’s estimate for FY25. From equity market point of view, it is priced for perfection and hence a policy which does not change and meets expectation is a non-event. From a fixed income point of view, vote on account laid the path of fiscal glide path and that resulted into about 10-15 basis point of yield movement downwards.

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There was not much expectation from this policy, except on the liquidity management and there RBI has said it will be nimble. So for both the markets, this is status quo policy and hence there should not be any material impact from this policy point of view.

RBI is a pretty conservative institution and a very adept one. Look at how, I mean, the RBI Governor twice have been applauded globally for their role in the last two, three years, especially recovery from the pandemic front. So if they are talking up the growth number back to back into policies, very, very small steps. The other global agencies will also look at that very closely but what about the Street? How would Street take that? And do you think that the rate cut regime, whenever it starts, maybe, mid-year this time around, has it started coming into the price or not yet?
So, undoubtedly, in 2024, RBI was way ahead of Street in growth estimate and everyone had to revise their growth estimate upwards. The same thing can happen for FY25. Street is today conservative than RBI on growth estimate and probably towards the end, it will converge with RBI on growth numbers.

The rate cut expectations have been built partially into the current levels. Inflation next year is expected to be around 4.5% as per RBI’s own estimate. It could be little higher as per the Street, but certainly that leaves about 2% real rate of interest, which will be reasonably high.

So, there is some expectation in the Street that as Fed reveals their card by way of rate cuts somewhere in middle of 2024, by end of 2024, there is stage set for RBI to cut interest rates, lower down the real interest rate, which are today prevailing at about 2%, and hopefully that will be supportive of growth.

And probably that is why RBI’s estimate of growth is little higher than the Street estimate, and like FY24, street will converge with RBI’s number this year also.

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