On rising corporate growth, the report notes that in FY22, around 2,000 listed companies reported 29 percent top-line growth and a 52 percent jump in net profit over the previous year. Construction sectors including cement, steel, etc reported impressive growth in both revenues as well as net income with 45 percent and 53 percent, rise respectively in revenue.
primarily driven by housing, auto, and other personal loans as customers, expecting interest rate hikes, have been front-loading their purchases. On the liquidity front, the report expects the central bank to be supportive of growth by only gradually hiking repo rates, but mostly frontload it in June and August with a 50 basis points repo hike and 25 basis points CRR (cash reserve ratio) hike in the forthcoming June policy.
After raising it by 50 basis points in the last monetary policy which will lead to the absorption of Rs 1.74 lakh crore from the market on a durable basis (Rs 87,000 crore absorbed earlier). High government borrowing has ruled out the possibility of OMO sale, thus CRR increase seems like the possible non-disruptive option for absorbing the durable liquidity. Furthermore, this opens up space for the central bank to conduct liquidity management in the future through OMO purchases.
Core systemwide liquidity declined from Rs 8.3 lakh crore in the beginning of the year to Rs 6.8 lakh crore now while net LAF (liquidity adjustment facility) absorption declined from Rs 7.5 lakh crore to Rs 3.3 lakh crore. The RBI is likely to raise the repo rate cumulatively by 125-150 basis points over the pandemic level of 4 percent. The central bank may also increase the CRR cumulatively by another 50 basis points.
Nominal GDP expanded by Rs 38.6 lakh crore to Rs 237 lakh crore, or 19.5 percent annualized. In FY23 also, as inflation remains elevated in the first half, nominal GDP will grow 16.1 percent to Rs 275 lakh crore, he said. The report bases its optimism on the rising corporate revenue and profit and the growing bank credit coupled with ample liquidity in the system.
Interestingly, the order book position remains strong, with construction major L&T reporting 9 percent growth in order book position at Rs 3.6 lakh crore as of March, supported by 10 percent growth in order inflow of Rs 1.9 lakh crore in FY22 and Rs 1.7 lakh crore in FY21. Similarly, the sector-wise data for April indicates that credit offtake has happened in almost all sectors led by personal loans registering a 14.7 percent demand spike in April and contributing around 90 percent of the incremental credit in the month.
With this, the monetary authority can give back to the market at least three-fourths of Rs 1.74 lakh crore absorbed through CRR hike or Rs 1.30 lakh crore in some form to address duration supply. This will lower the market borrowing to around Rs 13 lakh crore. Given the higher crude prices, trading over USD 120 a barrel, the report sees inflation averaging at 6.5-6.7 percent in FY23.