See rupee, bonds consolidating in near-term: HDFC Bank

Quoting the Finance Minister's measures to rein in the wide current account deficit (CAD) as 'specific,' Abheek Baruah, chief economist, HDFC Bank says he is surprised by the market reacting to them negatively.

In an interview to CNBC-TV18, Baruah said, "I thought yesterday's statement from the finance minister especially the ones late afternoon when he spoke to the press was as specific as it could get. So, I am a little surprised that the market has taken this so negatively, I do not know what the market was expecting."
Contradicting the market behaviour, Baruah says there will be some consolidation and reversal of behaviour once the market internalises and gets a timeline of these measures, which Baruah expects to be soon enough. 
Additionally, Baruah expects a boost in rural income post a good monsoon season. Below is the edited transcript of Baruah's interview to CNBC-TV18. Q: Do you see any respite for the rupee at all, we are seeing sustained measures and a laborious math put out by the finance minister and yet rupee is sagging, are you seeing any end to the woes at all?
A: I am a little surprised that the market did not take that somewhat positively because the market had been asking for specific action. I thought yesterday’s statement from the finance minister especially the ones late afternoon when he spoke to the press was as specific as it could get.
There are issues of whether there is appetite for quasi-sovereign debt, what kind of incentives banks have to raise in our deposits and so on. But I thought there is a specific plan, the numbers are fairly conservative and hence credible. So, I am a little surprised that the market has taken this so negatively, I do not know what the market was expecting.
Hence, the bottomline is that maybe after this initial sell-off and pressure on the rupee, there could be some consolidation and reversal once the market sort of internalises this and gets a sense of the timeline above, which this will happen. I suspect the timeline is reasonably soon. I am a little surprised. So, I do see consolidation setting in and some relief both on the bond as well as on the rupee front in the near future. Q: In that case, how are you looking at growth itself, we have seen one month of the 10-year above 8 percent and surely it is going to have ravages on the banks in terms of mark-to-market (M-T-M) more importantly it is going to make borrowing very expensive for those who are still able to borrow or have to borrow, so what are you penciling in by way of growth?
A: For the year of course we have revised our forecast down from 5.8 that we had initially, to 5.4. There is a downside risk to this. For the first quarter, we are tentatively working with the number of 5.2, which perhaps in the light of yesterday’s index of industrial production (IIP) numbers. We are fairly negative on prospect, so this sort of suggests a mild recovery towards perhaps the end of the year but nothing of the kind that some people were anticipating when the year started. Q: We have got the average for the April-June quarter, industrial growth coming in at -1.1 percent (minus 1.1). If you work it down to gross domestic product (GDP), do you think when you get your final numbers, it could be just 5 percent or even sub 5 percent?
A: It could be sub-5 percent. I would like to hold my judgement on this. We are working the numbers out. We have had a 5.2 percent for Q1. I want to rework the numbers a little and see how it works but, there is a downside risk to the 5.2 number for Q1 and consequently for the year as a whole. So, we are working with downside risk. In this period of gloom, we tend to completely overlook some of the possible positive triggers and some of it could come from rural spending. It has now established that the monsoon has been more than adequate this year and that does tend to have a fairly quick correlation with rural incomes and rural spends. So, that could be a support.
The other thing is that there seems to be much more traction under government projects in certain infrastructure areas, power, roads and so on which could gain a critical sort of momentum buy in the second half. So, that could also lend some support. I would not give up entirely on the growth prospect of a recovery, certainly it will be very tepid.