New Delhi, Feb 6: Industry body Asscoham on Tuesday said that the reaction of the bond market post the presentation of the Budget 2018 would ease out soon. “Yes, some of the macro indicators, including pegging of higher fiscal deficit of 3.3% for FY 2019 and 3.5% of the GDP for the current fiscal, look difficult, but reaction of the bond market to the budget-related would ease out soon,” Assocham said in a Position Paper on the Financial Markets.
It further asked the Reserve Bank of India should not over-react to the high yield pressures of the bond market, along with the government promising a substantial revision in the Minimum Support Price for farmers and refrain from going in for any hike in the benchmark policy lending rates when the Monetary Policy Committee meets tomorrow.
Assocham said the concerns over the MSP leading to the increase in retail inflation are exaggerated for various reasons. “In the first place, effectively, there is no MSP for the vegetables at the ground level. As for the Operation Green for onion and potato, the entire institutional mechanism would have to be worked out by the NITI Aayog along with the states. So is the situation with regard to the MSP for several other agri-commodities.”
“While the NITI Aayog and the states would bear in mind the farmers’ interest, the institutional mechanism would surely strike a balance between remuneration to the growers as also the impact on the retail prices. So, the immediate fear may be an over-reaction and the RBI should not get influenced while fixing the REPO (policy lending) rates in the coming week,” Assocham added.
On the stock market bloodbath, Assocham said that it is a healthy correction which was overdue. “A lot of froth and unnecessary exuberance had gathered around the stocks, particularly in the mid-cap space and there was no justification while matched against the corporate earnings.”
“In fact, one of our earlier papers had cautioned about wild fluctuations in the market in 2018 in the backdrop of headwinds like rising crude oil prices, revenue implications of the GST rollout and other pressures on the fiscal,” Assocham Secretary General D S Rawat said.