Rupee breaches 72 mark amid economic slowdown: Angel Broking
Mr. Jyoti Roy (Equity Strategist - DVP, Angel Broking):
"Tight fiscal and monetary policy over the past few years coupled with major structural changes have taken a toll on growth. Given current growth inflation dynamics, some amount of fiscal slippage is unlikely to stoke inflation. On the contrary we believe that fiscal slippage is necessary and will go a long way in boosting growth. Currently India does not have a twin balance sheet problem like 2013 when both current account and fiscal deficit stood at ~5%.
The tax cuts would increase profitability for companies at the highest tax bracket by ~14% which would be used by the companies to stimulate growth through price cuts and by increased investments in new capacities. Increased investments would boost growth over a period of time which would in turn lead to higher tax collections and thus lower fiscal deficit in the long run.
We believe that accommodative monetary and fiscal policy is the need of the hour to bolster growth as inflation rates are unlikely to pick up given significant spare capacity in the economy. We expect the RBI to cut rates by 40-65bps from here on over and above the 110bps of cuts so far. With major central banks printing money global liquidity should improve from here on and India should be able to get a disproportionate share of the liquidity going to emerging markets given the latest move by the Government which indicates that growth is of paramount importance to them and that they are willing to foster and reward a compliant culture."