See GDP growth in 4.5-5% range for next 2-3 qtrs: Nomura

Also read: Road ahead: Reason for both hope and caution for economy 

Below is the interview of Sonal Varma, India Economist at Nomura Financial Advisory & Securities and Jayesh Mehta, Managing Director & Country Treasurer of Bank of America with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Latha: What are your expectations from this event, what are the big numbers that you will watch out for from the interim Budget?

Varma: There are three key things that we are watching for. One is whether 4.8 percent target that was set for this year is achieved or not and if it is then how.

Second is the fiscal deficit target that is set for next year. The recommendation is for 60 bps compression so if the baseline would be for a 4.2 percent of gross domestic product (GDP) as the deficit target for FY15.

Third of course is the amount that the government is going to borrow from the market based on those fiscal numbers. Broadly, that is what we are looking for. Of course this is the interim Budget so when the final Budget is presented sometime in June, that is when we will know the real picture but these are what we will be watching for now.

Latha: How seriously will you take the nominal GDP forecast, the tax growth forecast, do you have any expectations against which you will measure them?

Varma: I think it is not just this Budget, every time the Budget is presented; we always look at these estimates and compare that to what we think will happen. So that gives us some sense of whether things could be better or worse. Last year, the starting point was for real GDP growth assumption of above 6 percent, which we did not think will happen.

In fact, when the final advance estimate numbers comes out tomorrow evening, the expectation is that growth will be just slightly ahead of 4.5 percent for FY14. So even for FY15, we will be comparing the numbers to our estimates and our expectation as of now is that the growth rate in FY15 will be around 5 percent. So if the number is north of 5.5 percent then we would take it with a pinch of salt.

Sonia: What is your expectation from this vote-on-account and with respect to tax if there are any tinkering or any announcements that you would be expecting?

Mehta: I don’t think we are looking much on the tax side but on the borrowing number of course market is quite divided. There are some people at around Rs 6.25 lakh crore next year and the general calculation is coming around Rs 6.80 lakh crore for the next year. So that is something we have to watch out.

However, that would be an event for short-term because ultimately we have larger event post April. So that would have short-term momentum in the market, for a week because even if it is Rs 6.80 lakah crore or Rs 6.25 lakh crore, the borrowing for the first quarter itself would be quite low rate maybe to the tune of Rs 1,60,000-1,80,000 lakh crore for the first quarter after which it gets finalised.

Latha: To clarify you are saying Rs 6.25 lakh crore or 6.80 lakh crore, that is a wide range, is it because you are adjusting for switching?

Mehta: Yes and so from that perspective I think there are some analysts in the market who are looking at 6. 20 lakh crore but we are more towards 6.80 lakh crore, so that is a divided view at this juncture. Either way, whatever that number is, if it comes anything less than 6.80 lakh crore or 6.60 lakh crore, market will be having some relief or some momentum there but that would be temporary because even if it is Rs 6 lakh crore or anything than that then it would be more than Rs 1.6 lakh crore for April to June supply.

So I would say, yes, it is an important event from a temporary, technical one week point of view but I think there are much larger events in mid-March and April.

Latha: To compare that number, what are you working with in terms of a fiscal deficit number not percentage and therefore market borrowing?

Varma: Like I said, what we are assuming is that in the interim Budget, the government will stick to the 4.2 number and we are also assuming that 90 percent of the fiscal deficit will be financed through net market borrowing. So that gives us right in the middle of the range that Jayesh Mehta motioned. So we are expecting around 6.5 trillion INR as the cross borrowing number.

Sonia: For the bond yield itself what is your expectation, what kind of a range could it hover within? Also factoring in that half the switch has happened?

Mehta: I think the way we are looking at it, yes we have couple of events that is the vote-of-account and then we have some redemption coming on February 24 that would have some momentum but yes, people will be very unconscious on the policy, which is on April 1 and people will also be looking at the consumer price index (CPI) inflation in mid-March. So till mid-March, there will be some momentum maybe post vote of account to maybe early March or so but I think then afterwards the market would be quite cautious. So I think we still look at bond yields coming down from the current level of Rs 8.67 to 8.55-8.52 levels but it would be more momentum weekly situation.

For the entire interivew watch video