A huge number of companies could apply for loan restructuring and then we could see a rerun of the cycle of 2011-13 and those kind of debt issues, says the analyst, asksandipsabharwal.com
Some attempts to boost liquidity specifically for NABARD, NHB. Also a window has been created to enable lenders to recast some loans, focus once again on stressed MSMEs as well. What do you make of the policy this time around?
There are two takeaways â one was that I was expecting prior to the policy itself that there is no scope for a rate cut. The Monetary Policy Committee actually confirmed that inflationary pressures are building in the economy and I believe that we have now ended this rate cut cycle. I do not think we are going to get more rate cuts going forward because the inflationary trajectory could remain quite strong, given the way food inflation has perked up. RBI governor also talked about fuel prices going up..
The second is this entire restructuring of loans which I think could be more problematic than creating any significant positives. If you give such a long moratorium of five months, then there will be a lot of people and companies who will not be able to repay because so much interest and principal has accumulated. They have no option but to go in for restructuring but restructuring creates a lot of issues for the banks.
This time, a huge number of companies could apply and then we could see a rerun of the 2011-13 cycle and those kinds of debt issues. The markets initially liked the restructuring, it was expected but I am not so enthused by it because it creates lingering problems for the banking sector and when the economy actually starts recovering, then credit flow becomes an issue.
What would you do with some of the banking plays right?
Banks are the weakest link in this market because the moratorium ends in August and then you go in for restructuring. As it is, you are not getting cash flow because of merely Rs 10 lakh crore of loans under moratorium and some hidden moratoriums. The banks are the weak link in this market. They will continue to underperform. Outperformance will come from other sectors, possibly FMCG companies, which are indicating a robust outlook or maybe some select pharma companies. IT could hold on but IT stocks are more or less fully priced at this stage.