Upasna Bhardwaj, an executive at Kotak Mahindra Bank, discussed the current state of corporate earnings and potential future risks. Bhardwaj noted that the overall corporate earnings data does not yet suggest any significant slowdown. However, she acknowledged that future demand risks could impact the corporate sector.
Regarding the H2 borrowing program assumptions, Bhardwaj affirmed that the numbers are in line with market expectations, stating that the 6.6 lakh crore gross borrowing anticipated by the government reflects prior announcements, resulting in no surprises from a market perspective.
When asked about the challenge of tax assumptions amidst delayed government capital expenditure, Bhardwaj pointed out that the fiscal deficit for the first four months stands at 17% of the overall budgeted numbers. This is lower compared to the same period last year, indicating ample room and buffers to manage the fiscal situation. Bhardwaj emphasized that tax buoyancy remains robust and suggested a potential for a slightly lower fiscal deficit by the end of the year.
Concerning the wholesale price index (WPI) and its implications on economic activity, Bhardwaj stated that current corporate earnings do not point to a major slowdown. However, she noted that global commodity prices have been low, influencing wholesale prices. Meanwhile, retail inflation is predominantly driven by food prices, and non-food categories remain in check due to low commodity prices.
On the subject of bond market reactions to the borrowing program, Bhardwaj explained that prior market movements had anticipated the borrowing calendar’s announcement. The second-half borrowing calendar was released after market hours, and the market had expected a potential reduction in the borrowing amount, leading to a rally. She indicated that recent market behavior reflects some disappointment, particularly due to increased supply on the far end of the yield curve while demand was higher on the shorter end.
Bhardwaj concluded that, given the high demand on the shorter end, further rallying could be expected in that segment of the curve.