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Informist, Wednesday, Dec. 4, 2024

 

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--Kotak MF: See rupee at 84-86 per dollar in 2025 
--Kotak MF: Expect both 50-bps CRR cut, 25-bps repo rate cut Fri 
--Kotak MF: 60-70% probability of a 25-bps rate cut in Dec MPC meet 
--Kotak MF: RBI May cut CRR by 50 bps at Dec MPC meet 
--Kotak MF: RBI may take some measures on Fri to infuse liquidity 
--Kotak MF: See FY25 headline inflation close to 4.70% 
--Kotak MF: See FY26 headline, core inflation at 4% 
--Kotak MF: Very high probability of India rating upgrade in FY26 
--Kotak MF: See FY25 GDP growth near 6.40%-6.50% vs RBI estimate of 7.2% 
--Kotak MF: FY25 fiscal deficit may be 4.8% due to lower capex spend 
--Kotak MF: Inflation to remain high over next two mos on high onion prices 
--Kotak MF: Delinquencies in mircofinance not a system-wide issue for banks 
--Kotak MF: Slow credit growth, deposit mobilisation headwinds for fincl svcs  
--Kotak MF: Rupee to remain stable compared to other emerging currencies 2025 
--Kotak MF: FY26 fiscal deficit likely to stand at 4.5% or lower 
--Kotak MF: Inflation to remain well anchored in FY25, FY26 
--Kotak MF Shah: Govt must up capex by 68% per month to meet Budget aim 
--Kotak MF:Bk credit, deposit growth gap narrowing, may ease margin pressure 
--Kotak MF: India 10-year G-Sec yield seen between 6.25% and 6.50 25 
--Kotak MF: Expect RBI to cut repo rate by 50-75 bps by Dec 2025 
--Kotak MF: Centre, state deficit to near 7% FY26, may aid India rtg upgrade

 

MUMBAI – Kotak Mutual Fund expects the Reserve Bank of India to cut its cash reserve ratio by 50 basis points and the repo rate by 25 bps while announcing the outcome of the Monetary Policy Committee meeting on Friday, Chief Investment Officer, Fixed Income, Deepak Agrawal said while detailing the fund house's outlook for 2025 Wednesday. The cash reserve ratio, or CRR, is a mandated minimum percentage of total customer deposits that commercial banks must maintain as reserves, either in cash or as deposits with the central bank. At present, it is fixed at 4.5%. Banks do not get any interest on this amount.

 

Detailing the reason for their estimates, Agrawal said that the fall in core liquidity in the banking system over the past few months is causing problems in the system. Cutting the CRR by 50 bps would infuse additional liquidity to the tune of INR 1.10 trillion in the banking system, Agrawal said. He also said that there was a 60-70% chance of a cut in repo rate by 25 bps on Friday, given the shocking growth numbers for the Jul-Sept quarter. GDP data released Friday showed growth slid to a seven-quarter low of 5.4% in Jul-Sept, sharply lower than economists' expectations of 6.5% and the RBI's own forecast of 7.0%.

 

The fund house also expects the RBI's MPC to cut repo rate by 50-75 bps cumulatively in 2025, against 125 bps of rate cuts expected by the US Federal Reserve. Inflation will remain well anchored, the fund house said. They expect inflation for the current financial year to be around 4.7% and for the next financial year, FY26, to be around 4%. However, inflation may trend higher over the next two months due to the spike in onion prices. Speaking on the hot topic of whether to include food inflation in the CPI basket, Nilesh Shah, the managing director of the fund, said that it is a very complex issue and needs to be looked at in detail, it cannot be a simple yes or a no answer. 

 

The Reserve Bank of India may also rely on some other liquidity measures like open market purchases of bonds to aid liquidity, Agrawal said. He said that all the tools will be used in a staggered manner, there will be a CRR cut to spur liquidity and if that does not work out they will resort to open market operations, he said.

 

Talking about growth, the mutual fund said it expects India's GDP growth to be around 6.40-6.50% for the current year, which is sharply lower than the RBI's estimate of 7.2%. Growth moderated in the first half of the year due to a slowdown in capital expenditure, fund managers said. According to their estimates, the government needs to up its capital expenditure by 68% every month, which comes to around INR 1.16 trillion, to meet the budgeted target. A pickup in expenditure, both from the government and from the private sector, along with a favourable monsoon, will help growth pick up in the second half of the year, fund managers said.

 

The government is expected to remain prudent and work towards reducing India's fiscal deficit. The mutual fund said that there was a "very high" probability of sovereign rating upgrade for India if the centre and state deficit remained near 7% till FY26. For the current financial year, the fund house pegged the centre's fiscal deficit at 4.8% due to lower spend on capital expenditure and at 4.5% or lower for FY26. 

 

Talking about the drivers of growth in the economy, the banks, fund managers said the sector may face some headwinds due to a slowdown in credit growth and the challenges banks are facing in mobilising deposits. However, pressure on the margins may ease going forward due to narrowing gap between deposit and credit growth of banks. The recent challenges banks have been facing due to rising delinquencies in the microfinance segment are not a system wide issue and are limited to certain players, the fund house said. 

 

The mutual fund also penned down their outlook for the Indian currency. They said they expect the rupee to fare better than its emerging economy counterparts in 2025 due to the Reserve Bank of India's active intervention strategy. When asked about the depletion of the foreign exchange reserves, Agrawal said that $650 billion of reserves are comfortable and as long as they are able to provide import cover of nearly 11 months, they should be sufficient. Agrawal said he expects the rupee to trade in the range of 84-86 against the dollar in 2025. The rupee closed at 84.7350 against the dollar on Wednesday.

 

The mutual fund also expects the yield on the 10-year benchmark government bond to trade between 6.25% and 6.50% in 2025, it said. The bonds will be supported due to inflows from their inclusion in multiple global bond indices, Agrawal said. At 1534 IST, yield on the 10-year benchmark bond was at 6.68%.  End

 

Reported by Kabir Sharma

Edited by Akul Nishant Akhoury

 

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