"We expect FY23 to stick to approximately 6.4 percent FD/GDP (fiscal deficit/gross domestic product) in line with last year's budget and FY24BE to target fiscal deficit of around 6 percent of GDP, on path of fiscal consolidation," Prashant Pimple of Baroda BNP Paribas Mutual Fund told Moneycontrol in an interview.
Currently Indian markets are trading at one of the highest premiums to emerging markets in its history. Resilience of domestic economy will attract flows back to Indian markets, the Chief Investment Officer - Fixed Income with more than 16 years of experience in fixed income segment believes. Edited excerpts:
Do you think the global central banks will turn dovish in the second half of 2023?
Globally, the risk of recession may lead to demand destruction and softer inflation going forward, giving central bankers enough reasons to tilt towards growth in the growth-inflation dynamics. However, many central bankers are focussing on core inflation which needs to show a sustained downtrend.
What are the expected challenges, which are yet to be priced in, for the market in current calendar year?
Fixed income point of view, the supply of government/state bonds may lead to crowding out effect in the bond market. Not only that we may see a demand supply mismatch in government bonds, but the spreads for corporate bonds may also be at a risk of widening due to this factor. The China reopening impact is yet to be gauged from a global perspective.
Do you think the Budget 2023 will be able to balance fiscal prudence and growth?
We expect FY23 to stick to approximately 6.4 percent FD/GDP in line with last year's budget and FY24BE to target fiscal deficit of around 6 percent of GDP, on path of fiscal consolidation. Although strong capex is expected to support growth, but overall nominal GDP growth target may be around 10 percent.
Which are the five most important things you expect from the Finance Minister in Budget?
In addition to Fiscal deficit and borrowing numbers for next year we would be keen on knowing the quality of spending (capex or revenue) and any changes in the tax structure of various instruments.
Do you see the possibility of earnings downgrades going forward?
In past 2 years, Indian markets have outperformed emerging markets by a wide margin. This is partially explained by resilience of domestic economy when all the Emerging markets were faced with the same global challenges. Currently Indian markets are trading at one of the highest premiums to emerging markets in its history.
We do expect the other Emerging markets to catch up. Ultimately resilience of domestic economy will attract flows back to Indian markets. Money will chase where returns are to be made.
What is your investment strategy for Target Maturity Fund launched recently?
We have newly launched a target maturity fund linked to the index of State Development loans (SDL). The fund will replicate the underlying index in terms of quality (SDL in this case) and maturity (December 2026).
The timing of the fund is such that investor will benefit from 4 indexation with less than 4 years investment. Also, the spread between similar maturity SDL and Corporate bond is very less at the current point in time making this product an ideal investment option.
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