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Last Updated : Mar 02, 2016 08:15 PM IST | Source: CNBC-TV18

'Govt retaining fisc target has gone down well with investors'

The government's decision to retain its FY17 fiscal deficit target at 3.5 percent has worked well with investors, says Deutsche Bank India CEO Ravneet Gill.

The government's decision to retain its FY17 fiscal deficit target at 3.5 percent has worked well with investors, says Deutsche Bank India CEO Ravneet Gill.

In an exclusive interview with CNBC-TV18 from the sidelines of a Deutsche Bank investment conference, Gill says he expects the Reserve Bank of India cut rates "sooner rather than later".

He is also optimistic about the state of the economy, saying that there will be a "big uptick" in growth September onwards.

Below is the verbatim transcript of Ravneet Gill's interview with Latha Venkatesh on CNBC-TV18.

Q: How are investors looking at the Budget? There was 700 point rally yesterday, are they basically endorsing the Budget and the economy's macros?

A: They take a lot of heart from the fact that the government is not going for easy wins. The temptation to loosen the purse strings would have been great but they have decided to stick with fiscal consolidation which has gone down exceedingly well with the international investing community. We have about 300 investors at the conference and the general consensus was that it was a very measured, very mature Budget.

However, if you see the big global economies in the world, not many of them have taken tough decisions and the fact that the government has taken tough decisions and has gone down well, not being populist and also the fact that that gives him fiscal stretch going forward and in that sense it is a balanced, it's a positive Budget.

Q: What are they saying about economy's growth picture? We have been pushing forward the earnings growth timetable. Is there a sense that growth has finally arrived or will arrive shortly in India?

A: You are right that the estimates have got pushed back by few quarters compared to what was initially estimated and that is symptomatic of how deeply entranced the problem was with respect to leverage, with respect to overcapacity. We see signs of that reversing and our sense is that September onwards you will see a big uptick in growth. So give it another six months, but from there on the earnings won't disappoint.

Q: What sense you are getting about the debt market? They boomed much more than the equity markets after the Budget, understandably because the fiscal deficit was lower. Are you also in the camp that expects a rate cut shortly, unscheduled?

A: Yes, I am in the camp that say that expect a rate cut shortly and what will be good for the market also is to see the government and the RBI in tandem. So, if you see a lot of what was expressed in the Budget is exactly what RBI has been saying as well. However, given the fact that the government has stuck to fiscal prudence, the rate cut from RBI is now very much order of the day. So we definitely expect it.

Q: What are you investors telling you about the way in which the bank non performing loan (NPL) uncovering was handled by RBI? Are they shocked by the picture, were they always expecting it and general attitude to Indian banks now?

A: It is less a question in terms of the magnitude of the problem. If you were an investor, what you look at is - does government have the ability to be able to recapitalise the banks to the extent of which they need to be recapitalised and the good thing is that they answer to that as an absolutely unequivocal yes. So, the way we look at it, we think that over the next three years potentially the banks will need recapitalisation of USD 19 billion. Does the government have the wherewithal to be able to put in that money? I think absolutely. I think the FM was very clear in his Budget speech that although they talked about Rs 25,000 crore of recapitalisation and if more needs to get done, they will do so. I think that is great news for investors and we think that they are very comfortable although you cannot wish the problem away. I think it is an issue that need to get addressed but Ministry of Finance (MoF) and RBI are very aligned in terms of how to address that problem but most importantly as a biggest shareholder the government has the ability to set that problem right.

Q: Are you all seeing these junk deals getting consummated. Finding buyers for stressed assets, the government has talked of asset reconstruction companies (ARCs) getting easier rules; their sponsors can bring in 100 percent, the security receipts can be sold to individuals. There is a tax pass-through as well. There are whole host of small things that they have done but you do the deal. Are people ready to buy an Electrosteel Steels, any stressed assets. Are you seeing those deals going? I am talking from both strategic and financial investors' perspective.

A: On strategic investors, there is still so much overcapacity in the system that we haven't seen at that level of interest except for the odd case like cement. The bigger issue with respect to entire stressed situation is that India has historically gone the portfolio route. We haven\\'t had too many single asset sales. I think the picture will become lot more interesting, you will see a lot more investor interest once that picture picks up, so for a variety of reasons and which are very well understood. In the past banks didn\\'t do bilateral sale of assets of single asset but that issue is now beginning to get resolved and once that becomes a reality, expect investor interest to spike dramatically - from financial investor perspective. For strategic investor you need to give little more time.

Q: What you heard from global guys. Is this global tremor we saw from January 1 onwards that roiled all risk markets? Is that over, are you getting a sense that the rest of 2016 will be more peaceful than the first two months.

A: The start of 2016 has been fairly difficult and very challenging. You will have to think back a long way to think which was the last time that a year got to a start when you had a beginning to the year like that, but having said that - are there concerns that this could be 2008 all over again. I do not think so. I think the level of capitalisation, the level of liquidity in the system is such that I do not think that the system will get shaken up or you could have event risk or systemic risk like it happened in 2008. So I think 2016 promises to be a very challenging year globally and the events that are there will be less financials rather than geopolitical more political. There is issue with respect to referendum on June 23; there is issue with respect to China in terms of what China decides to do with its currency and the US in terms of growth rate having come off a bit. So these are the imponderables that are currently casting a shadow but is it looking like 2008 all over again. We definitely don't think so.

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First Published on Mar 2, 2016 11:53 am
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