Moneycontrol
Dec 06, 2017 02:11 PM IST | Source: CNBC-TV18

India's position improves globally; Govt reforms look positive for economy: Ashok Wadhwa

Giving a positive view on India’s long-term prospects, Ashok Wadhwa, Group CEO at Ambit said that India's position has improved globally and has become attractive destination for long term capital.

CNBC TV18 @moneycontrolcom

The Indian market is trading below the record high tested in the month of November on the back of selling pressure.

Giving a positive view on India’s long-term prospects, Ashok Wadhwa, Group CEO at Ambit said that India's position has improved globally and has become attractive destination for long term capital.

He said this by highlighting that the current government is very keen on maintaining fiscal discipline. Reforms by the government in the form of GST, insolvency rule, and bank recap will have positive impact on the economy over a medium to long term.

On the D-Street impact, he said that the market has significantly supported by expectations that these reforms will yield the desire results and ultimately corporate earnings will move up.

Over the medium to long term the market is confident that tax to GDP ratio will improve dramatically with the changes that government has made. FII and strategic player are continued to invested and interesting in India, he said.

Below is the verbatim transcript of the interview.

Surabhi: It has been a fantastic year for the market, we were talking this 27-28 percent sort of almost unilateral one-way rally, and as we speak to you now, people are wondering is this it? Am I actually sitting at the cusp of a real correction because corrections have been 3-4 percent so far?

A: We have had a market which has been very positive over the last many months. We have all been waiting for a correction to happen. We do know that corporate earnings at points of time don’t justify the froth in the market but we also know that there is so much liquidity both globally and in India that markets at this point of time seems to be a better bet than almost any other class of assets.

Surabhi: You said froth in the market, do you see froth in the market?

A: When I say froth. I relate froth to corporate earnings. I think one would argue and say that at 24 times, the market is a little expensive. So I didn’t mean froth in terms of lack of reality. Just that liquidity has been driving the market versus the corporate earnings have been driving the market.

Having said that, government has unleashed a plethora of reforms. These reforms in the medium-term to long-term are going to have seriously positive impact whether it is GST, whether it is the insolvency roads, whether it is the bank recapitalisation and I think the market is being significantly supported by expectations that these reforms will yield the desired results and ultimately corporate earnings will move up.

Is there a correction expected in the short-term or the medium-term? We have all been talking about some correction coming in and I guess at some point of time, a correction will be welcome but whether it is eminent, whether it is happening round the corner, nobody can predict that at this point of time given the amount of liquidity in the market.

Mangalam: Can you tell us something on what we spoke about just a few minutes ago over the phone? You spoke about the possibility of the corporate tax rate being cut and the incentives which should be phased out. Do you think there is a possibility of that coming in and will that be an impact on our fiscal discipline?

A: This is a bit of a repetition but as I said earlier, this finance minister has shown phenomenal inclination towards implementing what he has said in his previous Budgets whether it was the insolvency law, whether it was goods and services tax (GST) and the most pragmatic of participants in the market did not believe that some of these things would happen at this speed and at the time at which these have happened. He made a promise two years ago that I will phase out deductions and exemptions and I will reduce corporate tax rates, he did that last year for the small and medium enterprises.

Mangalam: Costs are about Rs 9,200 crore and with the GST revenue shortfall coming in as well, do you think it is a possibility that it happens this year?

A: That is the key issue. If you look at the three corners, the government is very keen to maintain fiscal discipline particularly given the government’s emphasis on giving our ratings and that is very laudable of course. GST in the first year was bound to be chaotic, has had its own fair share of challenges, it is picking up now but I don’t know whether we have enough time between now and March to be able to catch up with revenue collections now.

With that background and given that this is likely to be penultimate or perhaps the ultimate Budget before the elections and government will have significant number of priorities in terms of its expenditure, will the finance minister be able to reduce the tax rate for large corporates in this year? A difficult challenge. I would say it is a difficult proposition but again this finance minister has surprised us with his ability to do it. So I wouldn’t rule it out completely but I would say at this point of time, rationality would suggest that perhaps a deferment of this is more likely than less.

Surabhi: Are you worried about the fisc, we have seen that maybe play out in the way the bond yields has been so stubborn above the 7 percent mark, do you expect a slippage from that red line first of all? If there is a slippage is that going to be a big dampener for the market or is it already priced in? How do you think the market is interpreting the fisc at the moment?

A: I personally believe the market has already budgeted that there may be some slippage. Now it is a question of what that some slippage is and that could be one trigger where the market will correct if the slippage is more than what the market is budgeting. I don't know what the market is budgeting but a general feeling as you talk to people around in the market is that there is likely to be some slippage and if it is given the many more benefits that are being delivered at this point of time that slippage is perhaps acceptable and pardonable and not to be worried about.

Surabhi: It is priced in now you think or could there be more downside because as you are saying the quantum of the slippage is something that is not exactly clear?

A: That in my view will determine whether the market stays firm or the market corrects itself at this point of time. But some slippage has been built in and it is fair to expect slippage to happen when you have a major reform like GST being introduced in a particular year. But there is no debate that over the medium to longer period market is very confident that the tax to GDP ratio will improve dramatically with the changes that the government has made and that augurs very well.

Mangalam: We spoke about the corporate tax rate coming down with the phasing out of incentives. What according to you is the lowest hanging fruit as far as the phasing out of incentives are concerned?

A: There is a lot of regulation that needs to be corrected. It will be difficult to identify a single, I mean is it the backward area unlikely that is the first one that the government will change. Is it the new manufacturing unit's legislation, again given the governments focus on Make in India, government must emphasise and continue to provide fiscal incentives to support Make in India because that is the only way you will create more jobs. So, difficult to identify one or two of the specific legislations. I think whenever the corrections happens it will be a lot of exemptions withdrawn at one time and a decent amount of correction downwards in the tax rates.

Surabhi: Just to sum it all up, what next for this market because there is the fisc that we spoke of, there is Gujarat and let us not forget there is the mother market which has been doing exceedingly well and now with the tax cuts over there, the strong GDP prints in the US, foreign institutional investors (FIIs) have not liked this market for long time. It has not been a problem as of now because of our domestic liquidity, but what next let say over the next 12 months for our market?

A: Global markets, global players, both FIIs and strategic continue to be very invested and interested in India. I mean if you look at the number of financial sponsorer who have now really replaced global strategic players it is amazing. When there is a large merger and acquisition (M&A) deal, you don't just think about a global strategic player. Your first response is to talk to a large financial sponsorer because the appetite to the financial sponsorer and remember they are a proxy to the ultimate investors which are the large endowments and the large funds. So, I would continue to believe that India's position in the global arena has improved significantly and continuous to very attractive as a destination for the long-term capital.
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