3-month Moratorium Provides Relief In The System: Naveen Kulkarni, CIO, Axis Securities

What’s your overall take on the recent measures announced by the RBI? Do you think they will help the economy tide over this difficult time?
The recent RBI measures are intended to provide stability in the financial system. The RBI measures will help, but difficult to assess the actual impact of the measures as the challenges emanate from demand and supply side issues.

Is the 75-bps rate cut going to have any meaningful impact in the short run, or is it more of a feel good factor right now?
The rate cut will have a limited impact in the short term but if the rates sustain at current levels over a longer period, they will have a positive impact on the asset prices. The  demand scenario should improve as there will be greater incentive for the consumer to spend than save. However, all these factors will take time.

Some have voiced that the 3-month moratorium could spell danger for banks with a high credit to deposit ratio. Do you concur? What are your thoughts on this?
The 3-month moratorium is an important move by the RBI as it provides relief in the system. There will be challenges as default rates and NPAs could rise over time and the impact will be more significant for banks with greater credit to deposit ratio.

Should borrowers be availing of this 3-month loan moratorium, or should it be an absolute last resort? After all, the accrued interest will continue to pile up, right?
It depends on the liquidity situation of the borrower. So, borrowers with liquidity challenges have no option but to avail the moratorium.

Are you bullish on banks at current valuations, or do you think an even deeper cut is in the offing? We’ve seen some brutal selloffs in the past couple of weeks…
Quality banks with strong liability franchises offer good value at current levels. The large banks have strong balance sheets and will be able to tide over the challenges and come out stronger. However, the short term corrections cannot be ruled out but they will be an opportunity to accumulate.

Do you think there’s still a chance of a V Shaped recovery for the markets? What would you advise investors to do right now?
 Markets will recover but it seems unlikely that the markets will hit the all time highs very soon because there has been serious economic damage. So, the markets can recover very fast up to a certain level (say 10,400) depending on how early the lockdown is lifted but it will take longer to reach the all time highs as there are serious economic challenges now.