India’s capital markets will take a couple of quarters to revive, but equity still offers high potential as an investment class, Vallabh Bhansali, Enam group chairman, tells Business Standard.
Will the economic slowdown worsen in the new year?
In my opinion, the first six months will be a year of stagnation for corporate India. While the first two quarters will be tough, the economic outlook would gradually improve towards the year-end. Low interest rates, smooth flow of credit, low commodity prices, the trickle-down effects of the stimulus package and a new government will eventually improve the outlook. As consumer and investor confidence improves, India’s growth potential would again start attracting fund flows. We will end 2009 on a positive note.
What are the main challenges that the economy will face?
The domestic credit squeeze and lack of adequate equity capital will act as a major constraint for growth. A slowdown in investments will affect the overall demand as well. An increase in unemployment, low disposable income and a dip in savings rate are the most important economic variables to keep track of. Election results will be another important factor. If a fractured coalition comes to power at the Centre, it will jeopardise the speedy implementation of policy measures required to meet the slowdown challenges.
Isn’t the depreciating currency also a factor?
Will you make new investments in 2009?
Yes, it would be a very good time for investment. I believe asset classes like equities would offer a great investment potential. Indian companies, which are sitting on cash surplus, can also look forward to invest in global companies which are available at a good discount to their fair value. This could be the right time to grow inorganically, diversify or establish oneself in the overseas markets.
Will your firm hire or lay off people?
Hiring people is like an investment and as I have said, if I get good value I would make new investments in 2009. While we continue to groom the present talent in the organization through various ways like training, job rotation, etc, we would not be averse to letting some people go.
Where do you see the capital markets in 2009?
Capital markets across the world are facing tough times owing to financial crisis and complete loss of faith in the financial system. Globally, restoring confidence in the financial system might take a bit longer than usual.
In India, we were less aggressive in terms of innovation and we have a very strong regulatory system. So we are protected. But the effect of this shock is clearly evident in India too. I think it might take a couple of quarters for the capital markets to revive and get back some decent pace.