In a chat with ET Now, Nilesh Shah, MD, Kotak AMC, says state development loans and UDAY bonds provide an attractive opportunity to invest. Edited excerpts
ET Now: Your first take on the policy fine print and the market's reaction to it
Nilesh Shah: If I have to measure the policy, it aims to lower the borrowing cost of the consumers by transmitting the liquidity. On the repo side, since January 15, 150 bps rate cut has taken place but the borrowing cost for the consumers has not come down because liquidity has remained tight. Liquidity remained tight because of currency in circulation going up and government not spending money before March. Both these will get reversed in April and May and RBI has taken certain steps in terms of improving liquidity. All these things will result in lower borrowing costs for the consumers. This will be good both for the debt market as well as for the equity market over a period of time.
ET Now: Do you think that today's policy take steps to improve the liquidity situation in the system adequately?
Nilesh Shah: Definitely. This month has been pretty unusual. The total borrowing by the banking system has remained above two lakh crore everyday in the second half of March. This primarily driven by unusual tightness in currency in circulation. It has grown by about 15 per cent YoY. It is also by the fact that the government's cash balance with RBI has been upwards of about Rs 130,000 crore. So increasing the government cash balance and the currency in circulation resulted in lower deposit growth, lower credit growth and lower liquidity in the system. RBI has announced open market operations. It has announced reduction in daily CRR requirements. RBI is also making a statement that they want to bring liquidity to neutral level from plus or minus 1 per cent of NDTL which means they will do more daily repo.
