Relief for NBFCs, HFCs and merger of NHB with RBI all good news: Balasubramanian, ABSL AMC

Bringing in a broader surveillance on HFCs and providing direct support to the HFCs from the Reserve Bank of India itself in my view is a big move in Budget 2019, says A Balasubramanian, CEO, Aditya Birla Sun Life AMC. Excerpts from interview with ETNOW.

This was supposed to be the first budget of the NDA-2. It was supposed to set the stage for economic thinking. But nothing grand has come. Incrementally, NBFCs have been given a little bit of lifeline. It is like a band aid approach, it is not going to change the course, will it?
One, the whole sector has been struggling for the last six months. At the same time, having a mention in the budget about the importance of NBFCs’ role and acknowledgement of a need to provide relief is big news. That is how I see it. There is a clear mention about NBFCs and a clear mention about HFCs.

Second, nobody could find a solution in the last six months what kind of support need to be provided I think Government of India through the budget now they have enabled close to about Rs 1 lakh crore would be provided to this sector in the form of the first loss of up to 10% can be provided to the banks provided they buy those assets from reasonably well run NBFCs. That is a good move and can provide relief to the banking system.

But you have to pay 7% more tax?
Of course, somebody has to pay and somebody spends a little more. One more thing is merging NHB with the Reserve Bank of India. Bringing in a broader surveillance on HFCs and providing direct support to the HFCs from the Reserve Bank of India itself in my view is a big move.

Earlier, there was a struggle how NHB will borrow and provide refinance to HFCs. That is being resolved now. It is coming directly under RBI and that is also in my view is a big positive news for the HFCs.

If bond yields come down, cost of borrowing comes down the problem is not fiscal stimulus the problem is that we need a monetary stimulus right now.
Of course, interest rates coming down is something which is big news for India.

There is nothing in the economy which tells you that near term something is going to change dramatically between March quarter and this quarter versus the coming December quarter. You are assuming that the economy will turn around but the smart guys know that if there is no magic and there is nothing in the Budget which will convince you that the script which markets are working with is going to be altered. That is really the only thing which you can think about and I can always say that some HNI investors will have to pay more taxes?
The increase in floating stock from 25% to 35% definitely is a move to increase the liquidity in the system. Therefore, buying and selling of those stocks by the investors will become relatively much easier and the impact cost will also be low which in my view will be seen as a big positive not in the short term, but definitely in the longer run while constructing the index for the broad market.

Today the biggest constraint that the MSCI Index has got in India is the lack of floating stocks because of which we have underweight on India despite being one of the large markets in Asia. That is something they have addressed.

Second, there has been a long pending demand that overcrowding of government borrowing in Indian market, spooks the yield therefore actually crowding out the private market borrowing and now they have finally announced plan to borrow abroad, it is a very bold step they have taken. We used to get a lot of advice from various people that you should never issue a dollar bond overseas. For the first time, actually the government is taking a bet issuing a sovereign bond in dollar denomination for overseas.

Therefore to the extent you are borrowing in the domestic market is going to come down. It is going to be positive for currency, it is going to be positive for interest rate, it is also going to be positive for spreads coming down for corporates therefore interest cost will come down so that is something structurally will make India far better.