Under the aegis of the RBI, banks have begun to take action on their stressed portfolio. Even the farm loan waiver bandwagon, with new entrants like Punjab and Karnataka, will help in relieving debt stress for farmers and potential asset stress of banks. A liquid market during this phase, which we are seeing, certainly helps.

Even bond markets seem to be processing the daunting size of farm loan waivers as something that is absorbable since private capital demand is weak at this juncture. For example, the 10Y Gsec has not budged, also because the bond market was focused on potential RBI rate cuts, which has become more likely after MPC minutes showed that there are more doves in the waiting.

Another risk that the market seems to have fully absorbed is GST implementation, with most expecting weak Q1 as inventories are drawn down and then an uptick in the following quarter on the back of restocking demand.

Key events

MSP policy was announced with 4-10% rise for key Kharif crops. The increase for Paddy (+5.4%) is in line with last few year, whereas the increase for pulses (+8%) will encourage further production. Crop sowing data as of 16 June shows a drop in acreage under pulses. The impact on WPI we estimate to be anywhere between 0.1-0.2bps.

GST progress (end June): Firms now have another month before they file their first returns under GST i.e. August end instead of July end. Each firm is expected to file alteast 3 returns (SGST, IGST, CGST) per month for each state it operates in, plus an annual return. This works out to 1073 returns per year for firms that operate in every state in India. Fortunately, it is all online. After some teething troubles it should be smooth sailing with a just some clicks to contend with – or so we believe.