The developments following the Supreme Court verdict on Vodafone has led to damaging policy changes by the government. The government is not just taking a step back, it is running back in time, says Gaurang Shah, assistant vice president, Geojit BNP Paribas Financial Services, in an interaction with Puneet Wadhwa. Edited excerpts:
What are your key takeaways from the Reserve Bank of India’s (RBI) statements while reviewing the monetary policy?
After a long gap of three years, we had the initiation of a rate cut, a big positive which will boost credit offtake that had been sluggish. It will also bring in a lot of regulations in terms of gold loans that were being offered by non-banking finance companies (NBFCs).
The statements related to savings account deposits are also a positive development. I feel savings bank accounts will attract certain additional services. The abolition of the pre-payment penalty in case of loans is a logical step. I don’t think the statements made by the RBI governor after the policy are hawkish.
Given the outlook for inflation and the macro-economic condition, have you toned down the estimates of how much the Reserve Bank of India (RBI) can slash key rates in FY13?
I don’t think RBI will be in a hurry to tinker with rates. There may not be a repo rate cut in the next two–three months. The central bank may choose to cut the cash reserve ratio (CRR) depending on the liquidity, especially in the banking sector.
The fiscal deficit and inflation will also play key roles in deciding the course of action on the government’s borrowing programme. What is your assessment of the index of industrial production figures for January and February? Has the revision created unnecessary panic?
This is the question of credibility for the government and such revision creates unnecessary confusion for anyone in or outside India. We feel the entire process of calculation needs some serious rethink and revamp.
The Vodafone tax case and developments pertaining to Indraprastha Gas... don’t you think India is sending wrong signals to foreign institutional investors (FIIs), which are seeking reformist measures from the Indian government, instead of a step back in time?
The outcome of the Vodafone case was a slap on the face of the government. There is no doubt that the developments post the Supreme Court verdict has led to damaging policy changes on the government’s part.
The Indian government is not just taking a step back in time but is running back in time. All this when the disinvestment target has gone out of the window, there is no consensus on foreign direct investment (FDI) in multi brand retail, the fiscal situation is at its all-time worst and there’s a growing subsidy burden.
Infosys kickstarted the earnings season on a disappointing note. What are your expectations from the Q4 results of India Inc? Have the markets factored in the worst?
I don’t think all sectors will report bad results. Some dark spots like real estate and aviation may deliver de-growth. On the flip side, autos, pharmaceuticals, cement and private sector banking will do well. Initiating an interest rate cut will certainly indicate that the worst is factored in, as margins will start improving for most of the sectors. We feel the March 2012 quarter results will be overall better than the December 2011 quarter.
A total of 84 loan applications worth Rs 64,534 crore were referred for corporate debt restructuring (CDR) in FY12 as compared to 49 cases in FY11, reports suggest. How do you interpret this?
It is a matter of concern, especially with public sector banks, as these are more exposed to CDR. We feel the norms should be more stringent for CDR. This is also because of the high interest rate environment, as it becomes difficult for companies to service these loans and that, too, in a time-bound manner.
Given all this, how do you expect the markets to pan out in the next three-six months? Would you recommend investors to allocate more towards defensives now?
We hold a positive view for the markets for now and the next three-six months. We have been recommending deploying 25-30 per cent of investable amount in the equity markets. However, the quantum of allocation will also depend on the risk appetite of an investor; one can have a mix of defensive as well as growth- and consumption-oriented sectors.
What is your outlook for the bond market and the rupee? Is the worst behind us?
I don’t think the worst is behind us when it comes to the rupee-dollar equation. All depends on the government’s fiscal policy and its implementation. Bond yields too, are expected to remain at elevated and I don’t think we will see a sizeable move either way. I expect the rupee to touch 54 against the dollar.