Govt can always move buybacks to next year: Jayesh Mehta

Jayesh Mehta, MD, Bank of America Merrill Lynch (BofAML), firmly believes that the reduction in second half borrowing definitely is a big positive. Now, RBI's policy call on October 5 will set the tone, he told ETNow.Edited excerpts: Do you expect to see a big relief for bond markets, given that the government has now trimmed its second half borrowing? Is it a big material relief?Definitely, it is a great relief. But I think market is always sceptical. I do not know why. I genuinely believe that they will be maintaining the fiscal deficit target through Rs 70,000 crore gross borrowing reduction. And that is quite simply achievable. So, it is not a big thing. That is definitely a relief in this situation in the market, particularly where we have a very different offshore scenario really hurting us, which is oil and dollar strengthening. In that situation, reduction of the borrowing programme definitely helps. But I think now the entire focus will be what is that we look forward to on the policy and how the (monetary) policy pans out on October 5. The fact that the government borrowing programme has come down, can I argue that there are two factors which could be under consideration? Either the government is looking at reducing their capital expenditure or the total expenditure in the second half or they are hoping that they would be able to raise a lot of capital by some asset sale?The first part does not work because the net borrowing programme has remained the same. So, from that perspective, they have not changed the net borrowing programme. But yes, people are doubting that whether that net number is good or not and if they have been saying right from the highest level to DEA secretary that, why should we doubt that. So they have been saying constantly, repeatedly right. Reducing the gross borrowing programme is by two ways – either by small savings going up and if not that, they can always cancel buyback and move it next year. So, of the buybacks of Rs 72,000 crore which they have planned in the budget, they can cancel the entire really. That is what the situation is. On the revenue side, what do you think is the government comfortable with in the second half in terms of revenue flow? I do not think the GST numbers have picked up in a manner that would appease the government. But do you think the numbers over there can look up? That we have to see, but then of course the government has been relying on a lot of PSU dividends and PSU buyout supporting their investment. On the government revenue side, the government was expecting more than Rs 1 lakh crore in GST, it is now less. They have kind of come to the terms of it. So from that perspective, yes if there would be more divestment, of course their own targeted divestment has still not yet started. So, we will have to see how it goes in the next six months. But if they have said it, they will maintain it, maybe they can cancel some expenditure too.

from Economic Times https://ift.tt/2QmyivN