Nilesh Shah explains: "Lower interest rates in India are unlikely to benefit India Inc. due to low leverage, but they do help on the valuation side, leading to higher equity market valuation. Concerns remain about India s premium valuation, but if local interest rates decrease, valuations will be re-rated, potentially pushing rating agencies to upgrade India s rating."
SBI Chairman Dinesh Kumar Khara discusses the impressive budget numbers and their impact on the growth potential of the economy. He highlights the importance of fiscal consolidation, private sector investment, and global investment in attracting capital and improving sovereign rating. Khara also mentions the positive impact of lower interest rates, government borrowing, and inclusion in the global bond index on the banking sector. He addresses concerns about the drop in savings and the movement of money into financial markets, emphasizing that it ultimately supports economic activity.
Porinju Veliyath believes that the formation of tourism hubs, along with themes like affordable housing, is important. He mentions the potential of religious and pilgrimage tourism with international airports and sufficient infrastructure. The development of tourism can contribute 1% to India s GDP. EIH is a good bet in the luxury tourism sector, especially with new opportunities like Ayodhya. There is potential for growth in the tourism sector, which will have an overall impact on the economy. Porinju expects ONGC to lead the PSU pack in the next one to two years due to its low valuation.
The commentary on the budget has had a more positive impact on the bond market compared to the stock market. The unexpected drop in yields has cheered the bond market. The fiscal deficit number of 5.1% has exceeded the debt market s expectations. The lower net borrowing program and the possibility of rate cuts in the second half of CY24 have given confidence to the market. The capital expenditure target for this year has been revised down to 950,000 crore, but there is still a 17% increase compared to last year.
The reduction in interest rates in the debt market is leading to increased flow of money into hybrid funds, which provide a tax-efficient way to participate in the reducing debt market. This has positive implications for the private sector as it reduces the crowding out effect of the government, leaving more capital for private sector borrowing. The lower borrowing program announced by the government also reduces pressure on yields, resulting in mark-to-market gains for banks and mutual funds.