ICICI Bank Q1 profit seen up 10%, provisions may increase

ICICI Bank , the country’s largest private sector lender, is expected to report stable earnings in the quarter ended June. According to a CNBC-TV18 poll, profit is seen rising 10 percent year-on-year to Rs 2,919 crore and net interest income may increase 15.5 percent to Rs 5,188.4 crore during the quarter. The bank will announce its earnings on July 31.

Both net profit and net interest income (the difference between interest earned and interest expended) growth are expected to be similar to previous quarters.

For profit, provisions and other income need to be closely watched. Provisions are expected to be elevated like Q3 and Q4FY15.

Provisions increased by 22.4 percent year-on-year to Rs 726 crore in Q1FY15, up 17 percent to Rs 850 crore in Q2FY15, up 41 percent to Rs 979.69 crore in Q3FY15 and up 88.4 percent to Rs 1,345 crore in Q4FY15.

Within other income, key factor to watch out for would be its fee income as the management expects double digit fee income growth in FY16. In Q4FY15, other income grew by 17.5 percent Y-o-Y to Rs 3,496 crore with fee income up 8.3 percent.

As far as its asset quality is concerned, the management post Q4FY15 earnings said stressed asset accretion in FY16 should be lower than FY15. Slippage from restructured book need to be watched as stressed asset formation remained high in last quarter with slippages of Rs 3,260 crore (against Rs 2,280 crore Q-o-Q) and 69 percent of slippages were from restructured book. Even in FY15, slippages jumped 25 percent.

The bank post Q4 said the restructured pipeline was Rs 1,500 crore. In March quarter, asset quality worsened with the gross non-performing assets up 15.4 percent and net NPA up 31 percent on sequential basis.

Loan growth is expected to be 14 percent led by retail book for June quarter. After FY15 earnings, ICICI Bank said it was targeting 18-20 percent growth in FY16 led by retail growth of 25 percent and domestic corporate growth of 10-15 percent. As of March quarter, retail contributed 42 percent of bank’s loan book.

Net interest margin sustainability is also going to be watched as it is likely to be supported by improved mix change in retail and even the bank post March quarter said margin could be sustained at 3.5 percent. NIM in Q4 was aided by refund from income tax of Rs 100 crore and it has around or above 3.3 percent since Q4FY13.

IMF approves $1.24 bn Iraq emergency lifeline

The International Monetary Fund approved a USD 1.24 billion emergency loan for Iraq on Thursday, saying the country needs extra support in the face of the Islamic State insurgency and depressed oil prices.

The money, to be disbursed immediately, will help the government meet urgent budget and balance of payments shortfalls while it undertakes fiscal and structural reforms.

“The twin shocks faced by Iraq from the ISIS (Islamic State) insurgency and the drop in global oil prices have severely widened the government deficit and caused a decline in international reserves,” said IMF Deputy Managing Director Mitsuhiro Furusawa.

“The authorities’ policies to deal with the shocks, including sizable fiscal adjustment and maintenance of the exchange rate peg, go in the right direction,” Furusawa said in a statement.

“However, large fiscal and external financing gaps remain,” he added, necessitating more internal measures to balance government finances, including new electric power tariffs or “compensatory measures”.

The seizure of more Iraq territory by Islamic State group jihadists and the costs of mobilizing a counterattack have further strained the government’s budget, already eroded after crude oil prices, its key source of revenue, fell by half over the past year.

Mainly due to the insurgency, the IMF says the Iraqi economy contracted by 2.1 percent last year and might grow only a bare 0.5 percent this year. The IMF projects Baghdad’s budget deficit to rise to 17 percent of gross domestic product this year, from five percent in 2014.

Moody’s warns against curbing RBI autonomy on policy rates

Moody’s on Thursday cautioned against tampering with the independence of the Reserve Bank of India (RBI) in deciding on interest rates saying it would hurt India’s economic prospects.

Moody’s Analytics, an economic research unit of Moody’s Corp, also raised a red flag over the Parliament logjam and said it is denting business confidence as key reform bills like land and GST are stuck.

A revised draft of the Indian Financial Code calls for creation of an interest rate-setting panel, where majority of the seven members will be nominated by the government.

While the earlier version of the code gave RBI Governor veto power over panel’s decision, the revised draft does not confer any such powers on him.

“We believe that a government-elected panel undermines the RBI’s independence. Moving to the new model would severely dent the RBI’s competency: Credibility would be lower, politics would drive decisions, and transparency would be reduced.

“Overall, we believe that tampering with the central bank’s independence would make it difficult to anchor inflation expectations. This would weigh on India’s economic prospects, particularly financial market stability,” Moody’s Analytics said in a report.

It said India’s monetary policy, with Governor Raghuram Rajan at the helm, has been effective.

The report titled – India’s Outlook: Waiting for Reforms to Fuel Growth– said inflation has fallen, external accounts have improved, and the economy is poised for further rate cuts. Terming the measure as a “dangerous road ahead”, it said “a recent draft bill could undo the RBI’s good work.”

It, however, hoped that given the criticism of the draft Indian Financial Code bill, it is unlikely to pass Parliament. Talking about reform measures of the Government, Moody’s Analytics said: “India’s political infighting is denting business confidence. Without a majority in the Upper House, the ruling Bharatiya Janata Party’s power has been nullified and the opposition has blocked proposed reforms”.

Key reforms such as the land acquisition bill, flexible labour laws, and the goods and services tax have failed to pass Parliament. “Given the political seesaw, these are unlikely to be delivered until later this year or even 2016,” the report said.

The land acquisition bill is a catalyst to investment, it said, adding passing the bill will improve India’s business environment by speeding up the conversion of land for infrastructure use. Foreign firms are wary of investing in India, as lengthy delays in acquiring land tend to stall projects.

Moody’s Analytics is the economic research analysis unit of Moody’s Corporation and is independent of Moody’s Investor Service, the credit rating agency of the US-based firm.

FinMin working for a reasonable GST rate: Revenue Secy

A day after Cabinet approved incorporation of changes in the landmark GST Bill as suggested a Rajya Sabha Select panel, Finance Ministry on Thursday said it is working closely on a “reasonable” GST rate.

“Working closely on GST rates. Reasonable rates are key to its success. Passage of Bill in Parliament to take us to next activities,” Revenue Secretary Shaktikanta Das said in a tweet.

The Union Cabinet last night approved amendments to the GST bill to compensate states for revenue loss for five years on introduction of the uniform nationwide indirect tax regime, as has been suggested by Rajya Sabha Select Committee.

The GST Constitution Amendment Bill would now be taken up for discussion in the Rajya Sabha, where the ruling NDA does not enjoy a majority, for passage in the ongoing session of Parliament.

The Government proposes to roll out the new indirect tax regime on April 1, 2016. After the bill is passed, the Centre will prepare GST laws and a GST Council would be set up to decide on the rates as well as to decide on exemptions and thresholds.

The Rajya Sabha Select Committee has suggested that the Goods and Services Tax (GST) rate should not go beyond 20 percent as higher rates could fuel inflation and erode the confidence of consumers.

Internationally, the GST rate ranges from 16-20 percent. However, there are some exceptions like Japan, Australia and Germany, where the rates are 8 percent, 10 percent and 23 percent, respectively.

KPMG Partner Pratik Jain said: “One would hope that now opposition would support the Bill in the larger interest of the country to get it passed in the current session of Parliament so that April 1, 2016 deadline can be met. It would send a strong signal to the businesses that government is serious about this transformational change”.

A sub-committee of Empowered Committee of State Finance Ministers on GST had earlier suggested 27 percent RNR.

But the rate is being reworked by the sub-committee in view of taxation of petroleum products as also the 1 percent additional tax which states can levy as part of the GST roll out.

While liquor has been completely kept out of the GST, petroleum products like petrol and diesel will be part of the new regime from a date to be decided by the GST Council, which will have two-thirds of its members from states.

Cabinet approves GST, consumer protection bills, NIIF fund

The Union Cabinet today moved amendments to the GST Constitutional Amendment Bill, approved passage of a new consumer protection bill as well as setting up of the Rs 20,000 crore National Investment & Infrastructure Fund that was announced in the Budget this year.

The NIIF will provide equity support to infrastructure financing companies by putting in a small portion while the rest could levered up from other sources, the government said, adding that it will decide on raising funds for NIIF from time to time.

“The NIIF has great ability to catalyze growth in the infrastructure sector,” Vinayak Chatterjee of Feedback Infra told CNBC-TV18, adding that he expected participation from other sovereign funds that would help lever up the fund’s Rs 20,000 crore corpus several times — something that Finance Minister Arun Jaitley had laid out in his Budget speech.

“The size of the NIIF can easily become Rs 2 lakh crore [after levering it up],” he said.

On the crucial goods and services tax (GST), which aims to subsume a host of central- and state-level taxes, the government moved an amendment in the Section 19, in line with one of the reported recommendations of the Select Panel, that would provide for revenue loss for states for full five years.

Said to be the most ambitious tax reform in decades, the GST for the first time aims to turn the country into a national market by eliminating varying state-level taxes on different goods and products.

The tax, which experts say has the potential to add 1 or 2 percent in the country’s GDP growth, is built in the value-added structure, which would eliminating the cascading effect of taxes (tax on tax) and is expected to boost tax collection by making compliances easy and also reduce overall taxation levels.

But the Congress was clear that it would not support the GST in its current form, which proposes a 1 percent additional tax on transfer of goods, saying it would dilute the tax’s structure and bring in a cascading element that aims to remove.

“We have submitted a dissent note in consultation with other parties. The GST in its current form will do more harm than good,” Congress spokesperson Randeep Surjewala said.

The 1 percent tax is said to be a measure that the government threw in as a measure to incentivize the country’s manufacturing states in order to come on board.

The Congress view got endorsement from Satya Poddar, tax partner with Ernst & Young, who said that at the least, the government should keep the GST’s ‘imperfections’ in the GST Bill — so that it could be modified later — rather than the GST Constitutional Amendment Bill, which can prove hard to modify.

But Krishnan Arora of Grant Thornton India and independent Rajya Sabha MP Rajeev Chandrasekhar said they would prefer if the GST bill is passed in the Monsoon Session of Parliament even in its “compromised” form.

“This is the first step towards rolling out a national tax. The Congress must realise that this is not a compromise of values but a consensus,” Chandrasekhar said.

PNB may take over steelmakers to recover debt

Punjab National Bank  (PNB), India’s fourth-largest state lender by assets, could take control of some of the country’s most heavily indebted steel companies and sell them on as part of a restructuring backed by New Delhi, bank officials said.

PNB, a quarter of whose nearly USD 4 billion portfolio of steel loans is stressed, is considering taking charge of some companies over the next two years, changing their management and then selling stakes, Executive Director KV Brahmaji Rao said.

The bank is also talking to its lending partners about carrying out debt-for-equity swaps, which would dilute the stakes of existing shareholders and give creditors majority ownership, but nothing has been finalised.

“We are getting feelers from some local investors who are interested to buy stakes in these companies,” Rao told Reuters on Tuesday, declining to name the borrowers or the interested parties.

The issue has a broad significance in India, since banks, fearing more loans could go sour, have slowed financing to roads, ports and mining projects, strangling Prime Minister Narendra Modi’s efforts to revive the economy.

Total bad loans held by all banks are estimated to be at a decade-high of USD 49 billion. PNB, fellow government-controlled State Bank of India (SBI.NS) and other lenders are saddled with stressed loans of about USD 23 billion to the steel industry, which is struggling with weak prices and surging imports from an oversupplied China.

Among steel companies, debt-heavy Electrosteel Steels Ltd (ELES.NS) said on Monday its lenders would restructure its loans, while Bhushan Steel (BSSL.NS) is another big borrower.

Nittin Johari, finance head of Bhushan Steel which recently restructured its USD 5 billion debt, said he was not aware of any plans by lenders to seek control of any company.

The finance ministry is considering a rescue package for steel companies, including hiking India’s 10 percent import duty and injecting funds into companies deemed viable, a senior ministry source said.

A senior steel ministry official said raising the import duty was a priority.

Currencies to watch in the latest resources rout

Commodities have been a crushing long trade, with the latest rout taking oil below USD 50 a barrel, gold on its longest losing streak in almost 20 years and the commodity currencies – the Canadian, Aussie and Kiwi dollars — to six-year lows.

They are not the only victims: Copper, iron ore, mining stocks and soft commodities have also fallen victim to a rollover that some brokers have called a “second wave meltdown”.

The blame game is on with Chinese regulators searching for a bear raider manipulating gold markets, while others point the finger at the US Federal Reserve for triggering a repeat of the taper tantrum as interest rates are poised to rise.

Meanwhile emerging markets are regularly named as culprits, in particular China with its slowing growth.

The falls are so extreme that market watchers are forced to reach for long-term charts to provide context. The Australian dollar last traded below 74 US cents in 2009 and before that in 2006. Is this now a very low entry point or a value trap?

If the Aussie can ever reclaim 110 US cents notched up in 2011, then it would appear to be a tremendous buying opportunity, on the other hand if the low point of 60 US cents tested post crisis in 2008 is again possible or even worse the Aussie revisits levels below that witnessed in 2003, the currency could remain a soul-destroying trade. This is the conundrum facing those who might be tempted by a get rich quick trade on commodity plays.

The bears are piling in long and thick on commodities as supply continues to outstrip demand. Mining giants have fought aggressively for market share by keeping production high while extracting cost efficiencies. Few believe prices have floored, as the miners simply have not slashed capacity enough.

“We’ve been in a multi-year bear market with China’s structural rebalancing still happening, we haven’t seen a meaningful turnaround in commodity prices,” said Michael Widmer of BofA Merrill Lynch Global Research.

“I’m not sure we are at the bottom,” said Mark Cutifani, CEO of Anglo American about commodity prices.

RBI imposes restrictions on Mapusa Urban Co-operative Bank

The Reserve Bank on Monday imposed restrictions in terms of business activities on Goa-based Mapusa Urban Co-operative Bank in view of its deteriorating financial conditions.

“The bank (Mapusa Urban Co-operative Bank of Goa Ltd) shall not, without prior approval of RBI in writing grant or renew any loans and advances, make any investment, incur any liability including borrowal of funds and acceptance of fresh deposits…,” the RBI said in a statement.

These directions should not be construed as cancellation of banking licence by the RBI, it said adding “the bank will continue to undertake banking business with restrictions till its financial position improves”.

The restrictions will also apply for disbursement of any payment in discharge of its liabilities or obligations or otherwise.

It has also been asked not to enter into any compromise or arrangement and sell, transfer or otherwise dispose of any of its properties or assets except as notified in the RBI directions.

Not SIT, market merely reacting to poor Q1 nos: Emkay

The crack that is currently playing out on the Dalal Street today is not on the back of the SIT report on blackmoney, but is just the market reacting to poor Q1 numbers announced by corporates, says Krishna Kumar Karwa of Emkay Global Financial Services.

A Supreme Court-appointed SIT on Friday asked regulator Sebi to compulsorily identify real owners of foreign funds coming through the controversial P-Note route and also prosecute those using equities for tax evasion.

In an interview to CNBC-TV18, Karwa infact says the Indian market is in a consolidation phase and he doesn’t see any major challenges for the Nifty in the long-term.

Stock valuations, however is a totally different story according to Karwa who is confident of a downgrade cycle hitting the market.

While asset quality remains a concern for the banking sector, Karwa says an investor’s portfolio must have financials and capital goods apart from pharmaceuticals and fast-moving consumer goods.

Latha: What is your sense, do you think that it is all the p-notes issue that is spooking the market or do you think the market was headed lower anyways? We have got this reassurance on p-notes that nothing knee-jerk will be done, how do you explain the market performance?

A: As far as the p-notes issue is concerned, various regulations whenever they are introduced I am sure the government of India is cognizant of its impact on the capital market and there will be sufficient time, etc which will be spent before any regulations are introduced. So, I don’t think so that there is any knee-jerk reaction as far as the p-note issue is concerned.

As far as the market is concerned, we are in this consolidation kind of a phase where we did have a decent run up pre-results and as the results have started flowing in and naturally fair valuations so there is some money being taken off the table and that is what we are possibly seeing now. Even last week if you see markets were very volatile and you had uptick of 1 percent and downtick of 1 percent the next day. So, basically the market is in a consolidation kind of a phase and that is what we are witnessing currently.

Latha: You are saying is even without the p-notes issue the market was headed lower and are headed lower?

A: Market is reacting to the result flows as such so I think market is very rational and stocks are reacting broadly based on the results and the valuations matrix and that is what we are currently seeing.

Sonia: What is the strategy that investors should adopt now? Is it better to raise your cash levels and take some profits out of this market or do you continue to buy on every dip?

A: As far as investing is concerned, it is a continuous process. I don’t think so you react on every piece of news flow and every quarterly result. I think that is the function of valuations and what is your time horizon. So, I don’t recommend investors should be doing any knee-jerk reaction based on a few quarterly numbers disappointing, etc.

Also, the time horizon is very important, I think from a longer term perspective I don’t think so there are any challenges. Maybe in the immediate run you could possibly see some stock price correction happening because stocks possibly have run ahead of fundamentals.

Latha: Going by the kind of numbers we have got so far in the result season and usually the better numbers come in the beginning, what is your sense about when earnings will improve? We have got those early bird collated numbers from Business Standard and they are crying out that profit is grown barely by 5 percent, much lower than what they did even in the same period of the previous quarter. So, when do we see earnings improving, which quarter you think?

A: Based on various ground level checks and corporate interactions, etc improvement is at least a few quarters away if not long, if not more. So, from that perspective possibly we are going to see many more earnings downgrades, etc. I think that downgrade cycle has still not got completed as far as the analyst expectations, etc are concerned. So, maybe this quarter you would possibly see the maximum of downgrades, etc happening.

As far as improvement in earnings, everybody seems to be of the view that it should be the second half. Let us see how second half pans out. We believe that FY17 is the year to look at and FY16 will possibly be a year of very muted growth on broad numbers.

Sonia: How do you approach a space like pharmaceutical after the big collapse that we have seen in stocks like Lupin and Sun Pharmaceutical Industries ?

A: That space has disappointed. This is the second quarter on the trot where we are seeing some of the large pharma names disappointing and the larger pharma companies seem to be having poorer pipeline. One of the companies is grappling with major merger that they have done, the other company doesn’t seem to have a strong pipeline of products at least for the immediate 12 months.

Therefore, investors have started questioning that pharma has had a super run in terms of valuations etc and the growth that they have seen in the last three-four years. Is there a case building up for a slight gradual derating of many of these companies in the next 12-18 months? So that’s the question mark which investors are grappling with. My sense is that the bigger three-four names maybe in a consolidation kind of phase and investor would possibly move to the next line of pharma companies which possibly will be able to show much better growth than the bigger companies.

Latha: Let me turn attention to the banks. The results posted by the likes of Indian Overseas Bank (IOB) were absolutely disastrous and even the other banks and even non banking financial companies (NBFCs) like Mahindra & Mahindra Financial Services (MMFSL) are giving a scary idea of the amount of loan defaults that are still happening. How do you approach private sector banks now since they were a little unscathed?

A: As far as the new generation private banks are concerned, the two or three results which have come, the results have been good and stocks have reacted stable to positive. So, there the challenge seems to be minimum as such as far as the asset quality, etc is concerned. The challenges are in the public sector banks where we have not seen too many of the biggies yet coming out with their results. So, the asset quality concerns still remain.

As far as some of the NBFCs, etc are concerned, like one of the names we mentioned, it is a seasonally weak quarter. The numbers have been below consensus but I would not press the panic button there because a few good quarters if the rural India performs well, there is decent monsoon and two quarters down the line you could possibly see a recovery number also surprising you on the positive.

Sonia: Would you extend this argument to the FMCG space as well because there are so many stocks in the broader FMCG market, names like Dabur, Emami, Britannia which are still doing much better than the overall market? Is this a space that you would be bullish on?

A: From a growth perspective, yes, they seem to be delivering decent set of numbers. The challenge over there in that space is the valuations. The valuations are kind of priced to perfection. So I don’t know what kind of returns can you make if you are going to be investing in these companies at current prices. So, it is not a question of growth over there, it is a question of the valuations which doesn’t leave much margin for growth, price appreciation in the immediate run.

Latha: I just wanted to ask you what would be your stock allocation be? If I were to give you a Rs 100 to invest what would be the percentage allocation across sectors now?

A: The way it works is that financials should form an important part of your portfolio because that is where in the next 24-36 months whenever things improve you could possibly see the maximum up tick over there. Then second you come down to cap goods and infrastructure. So, these are the two segments which should attract a decent amount of your capital allocation.

As far as pharma and FMCG is concerned, they are the more stable kind of portfolios that you own. Last but not the least, oil and gas is one where you have the oil marketing companies and the refining segment doing well. There, there seems to be a structural change in that segment and maybe slightly higher allocation to some of these PSU refiners. That could be a segment where you could see possibly good appreciation.

Sonia: The oil marketing space which has already given substantial returns, don’t you think investors may have missed the bus at least the ones who have not participated or is there still a lot more to go?

A: I think there has been a good appreciation in most of those stocks in the last six to nine months. However, having said that, if you believe that crude oil prices are expected to be benign then the subsidy issues are behind the companies. If you believe that over a period of time direct benefit transfer (DBT) will be implemented and you will have also kerosene subsidy being largely reduced then structurally there is a very positive tailwind for the whole segment.

This is a segment where as far as the retailing is concerned there is a huge amount of entry barrier. So, gradually if they are able to deliver decent return on capital employed then the discounting that these companies attract could be much better than what they are currently.

Latha: I just wanted to ask you what you have made of the IT numbers, is that a sea change and will that make you increase your allocation to that sector?

A: As far as the largecap IT sector is concerned, they seem to be facing a lot of headwinds as far as growth is concerned. We have seen that in many of the IT companies numbers also. So, that is a sector which we believe will underperform for some time. So, I am not too sure that we will be increasing our allocation.

One quarter doesn’t make us change the view. One of the companies have delivered very good numbers in this quarter but overall if you look at it, it is still a 8-9 percent kind of a annual growth and the discounting are relatively rich.

Latha: Would you say that the market is protected at 8,000 the way things are?

A: I would tend to agree, I think we are in this consolidation kind of a range. The range itself is like 8,000 on the lower side and maybe 8,800-8,900 on the higher side. That is the kind of range we seem to be in as of now. I think that should be there for the next three to six months barring unforeseen, unprecedented inflows, etc.

Major panic from FIIs over P-notes unlikely: Ridham Desai

The SIT recommendation to go after P notes to stem black money is unlikely to impact market, says Ridham Desai, managing director at Morgan Stanley in an interview to Udayan Mukherjee. He is confident that the government will make a studied decision on the issue and rules out the possibility of the FII community panicking over P note issue. Desai, on the other hand, is worried that if GST Bill does not get passed during the Monsoon Session of parliament, it may hurt sentiment. But that is “short-term” glitch in the 3-5 year bull run, he says.

Q: The irritant which has cropped up, which is this whole business of the Special Investigation Team (SIT) probe into participatory notes (P-notes) originating out of Cayman Islands. You remember a few years back when this whole P-note thing happened, how much havoc it caused in the market? Do you have a sense of where this one, how this one might play out and whether it might unleash any kind of damage to sentiment and to foreign flows?

A: It is premature for us to react to this frankly, because it is amongst the many things that the SIT has pointed out in its attempt to stop black money flows, so I think it is too early. I think the government has some has since then issued a clarification that nobody should jump to any conclusions, that any action will be taken after careful thought.

The government had the experience with the minimum alternate tax (MAT) issue that dealing with this in a casual fashion can create a lot of impact on sentiment. So, we should expect from the way the government rectified the problems with the MAT issue that this time around, they will be a lot more careful before any actions are taken. But, overall, I think it is too early for us to actually react to this.

Q: Is it a potential irritant though? Would you expect worried calls from clients? Is it something that will engage your attention as a brokerage house over the next couple of days? Would you expect to hear any voices of consternation from your clients?

A: No, I do not think so, not immediately. I think people will like to see what details are following up. Just the mention of P-notes as a potential source for black money, I do not think is going to worry too many people, especially because a lot of them actually have credible flows that are coming through. So, I do not think they need to worry.

Those who may not have credible may have to get worried and they may actually not be part of our client base, so I do not think I expect any major panic from our client base.

Q: You have been quite bullish about the market and one of the planks of your bullishness is kind of affirmative policy action from New Delhi that you are expecting over the next few quarters and years. In that, the way parliament has moved this time and first fear that maybe a key policy thing like goods and services tax (GST) might get delayed beyond its implementation date. Is that causing some worry for your investors that maybe, policy action may not be allowed to flow as smoothly as people might have begun to price in?

A: Certainly, I think the logjam in Parliament is not good news for those who are expecting GST to be passed in this session. I think that is the large scale expectation of the market that the GST Bill gets passed in this Monsoon Session. It is imperative that it gets passed for the government to meet its April 1, 2016 deadline. If it does not get passed in this session, that deadline will look very challenging. So, to the extent that the parliament is not functioning is a cause for worry.

Now, as such, if I take a slightly longer-term view, the GST tax law change is a sweeping reform. Probably, one of the biggest that we have done in 20 years. So, whether it happens in April, or it happens in June, next year is not going to materially change the outlook for India’s long-term story. But certainly, it could damage sentiment in the short run. So, we have to be careful about that. And if the government is not able to pull it through in this session, then there could be some risk to near-term share prices. The long-term, I do not think gets affected, even if it gets delayed by 3-6 months.

Q: I asked because these government policy things have a habit, given our political landscape of moving in bursts, you will have a lot of actions and then, there will be a bunch of assembly elections and then nothing will happen and then something will happen and then a burst again. I am sure you are watching the Bihar elections and the few assembly elections which are lined up after that, which are fairly close to call. Do you think, given that, timing is important of how much the government is able to push through right now before the clutch of those assembly elections and how they may turn out?

A: I think there are two parts to this. The first part is what is happening on the executive front. Those actions are far more material to say the growth rate India will experience over the next 12-24 months. The second part to this is the legislative changes that have to be pushed through to the parliament. Those changes are more material from a longer-term perspective. So, so far as the executive action is not stalled and I believe it is not, a lot of the data that we receive suggests that if anything, executive action actually has been progressing at strong pace. I think the market will be okay, because the market will then receive good growth data points which is what the market cares for.

Of course, along the way, the market will also want that some of this legislative agenda gets fixed because that may have an impact for the longer-tem stories and to that extent, the point that you make on the impending elections in Bihar and the other elections that will come up next year could become an impediment especially because, as you point out, Bihar is too close to call.

I have not done the analysis on the Bihar elections. I think it is still very early for us to actually take a call on that. But, given the aggregation of the opposition in Bihar, it looks like it is going to be an interesting outcome and it will be a difficult one to call because it will be a binary outcome.

So, to that extent, of course, these things will come along the way. The bottom-line point that we should focus on here is that we may be and that is what my view is in a 3-5 year bull market. Now, along the way, are we going to experience certain patches of uncertainty, certain patches of doubt? Certainly, we went through that, we went through one such rough patch in the months of March, April and May. We came out of it in the end of June. We may enter into another rough patch if there is a logjam, continuing logjam in Parliament and if there are adversal state election results. And those will be opportunities for long-term investors to engage in the market. So, I think, if we use that as our operating scenario, then we should not worry about these short-term glitches that keep coming along the way.

But if your question is, are we going to get them? I think, certainly, we will get them. We will get a lot of glitches along the way and share prices will react to those.

Q: Now, let me ask you about this very point that you have raised – the glitches or the rough patches. If you think that we are about to enter one such rough patch at some point or a glitch, what is more likely to precipitate that glitch? Do you think it will be something local like, this lock jam in parliament, SIT probe, etc. that we have discussed so far or could the genesis of that be something global given the kind of very rough data that we are hearing from China, this home sales data in the US? Do you think there could be some global panic which precipitate that? If you had to put your money on one of the two being the reason for this glitch, which one would you put it on?

A: If I get anchored to what happened between March and May, it was actually a mixed bag of both and global led local factors. But, let us evaluate this which is a very interesting question that you have asked. I hear the world is suddenly looking a lot murkier than India is. You point out to the growth in China, the possibility of a Fed rate hike, the problems in Europe, I do not think these are getting solved in a hurry. So, they will keep recurring and they will keep incurring damage to equity share prices along the way.

India has done a lot to fix its macro stability risk. We have come a long way from 2013. Fiscal deficit is down, the current account deficit is down, inflation expectations are down, real rates are up. So, if you look at what happened in the month of June, particularly when there was a global risk-off on the back of Greece and then kind of China growth-scare. India actually behaved like a low beta market. This low beta characteristic actually comes from the fact that India’s macro stability is a whole lot better than its peer group as well as a whole lot better than what it was two years ago. The symptom of this macro stability improvement is that domestic flows are very strong.

So, we have outlined this story a few weeks ago that we think that we are in the midst of or at the beginning of a super-cycle in domestic liquidity into equity shares into India. That story will play out over the next several months and quarters.