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May 28, 2013, 01.45 PM IST | Source: CNBC-TV18

India has no case for rating upgrade: CLSA's Rajiv Malik

Rajeev Malik of CLSA told CNBC-TV18 believes India is still facing the risk of a downgrade.

Not the one to frown on recent talks of downgrades by rating agencies, Rajeev Malik of CLSA told CNBC-TV18 that India doesn't fully appreciate the sovereign rating process operation. "I don’t think there was ever any case for rating upgrades." He even believes the country is still facing the risk of a downgrade.

He appreciates the steps taken by government on policy front, but believes such measures need to continue if India is looking to draw global liquidity in the next 12 months.

Below is the verbatim transcript of the interview on CNBC-TV18.

Q: You are expecting a sub 5 percent number again for this quarter, is it?

A: Absolutely. I think it will give slightly better than the December quarter but still be below 5 percent, more like 4.9-4.8 percent kind of a range. Do bear in mind, while optically the headline number will show some improvement, I tend to track non-agriculture GDP closely as well and I think that will remain unchanged at about 5.2 percent. In fact had it not been for a favourable base impact, the year-on-year number for non-agriculture GDP would have actually been slightly lower. So all in all, more of a bottoming out trading the bottoms kind of a setting as oppose to any quick dramatic or strong turnaround taking shape.

Also Read: Why Chidambaram doesn't yet deserve an upgrade

Q: For some time your view has been that the recovery could be slightly erratic in nature. Given that, what are you expecting in Q1 and Q2 FY14? What kind of growth numbers could you be looking at?

A: They will be slightly better on a year-on-year basis compared to what we saw in the March data. One of the big moving parts that nobody really has a good handle on is what kind of revisions we will see to some of the past data. But incrementally, headline numbers will show an improvement. The critical question is really going to be that is it one of those pedestrian improvements or any kind of lot more palpable tangible improvement? I think it is going to be much more of a second half scenario. But essentially to really talk about a genuine recovery, it would have to be more of a post election scenario.

Q: What do you think will be the most disappointing internal of the GDP figure when we get it? The disappointment really has been flowing through on industrial production numbers, manufacturing growth - those have been struggling.

A: Those would be reasonably similar to what we have seen in the monthly trajectory. Agriculture will be one important swing factor but I think the profile on the services side would really be important; partly because if you look at some of the indications from sequential PMI readings, those have been softening. While everyone in India looks at year-on-year GDP growth number, that will hold similar to the last quarter only because of a favourable base impact which is part of the reason I mention that incrementally, don’t hold your breathe for any kind of dramatic improvement.

Q: There was some observation from the rating agencies recently when they didn’t seem to support any case for a re-rating for India or change in the rating outlook for it. Do you think they will have cause to do that through the course of FY14 or will it remain a struggle?

A: When you say change in ratings, I don’t think there was ever any case for rating upgrades similar to what some of the government officials had been talking about. I think it only goes on to show that India really still doesn’t fully well appreciate how whole sovereign rating process perhaps seems to operate. Is there a risk of a downgrade? I think the risk is there. It just depends on how things evolve. Some of the pressure points have lessened certainly with commodities coming off and the government actually having undertaken some long overdue steps.

But this has to be a continuous process. It can't do it and then go off to an hiatus of sorts; which is why I think one of the biggest issues over the next 12 months is really going to be with global liquidity cycle and how it impacts India. Don’t forget, India has been an important beneficiary and has suffered much less despite a multiple imbalances because of that easing global liquidity conditions. So even if it is a gradual shift on that front, the fallout has to become more visible as far as Indian macro is concerned.

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