The export slowdown seen in May trade deficit data is quite disappointing. Sentiment in global market is still very subdued, barring North America most major global importing economies continue to remain under stress.
Foreign investors have taking money off the table spooked by the depreciating rupee as it directly affects their return on investments (RoI). However, from a medium to long-term perspective, India's long-term investment appeal is still very much intact, believes Sunil Munjal, ex-head of CII and joint MD- Hero MotoCorp . Further he added that the impact of rupee's depreciation on balance sheets of India Inc is unlikely to be very major as most companies who are borrowers are major exporters as well, so there is natural hedge. He expects the Indian currency to stabilise hereon.
Welcoming the new FDI proposals , he said these changes are likely to attract more interest from FIIs.
However, the export slowdown seen in May trade deficit data is quite disappointing. Sentiment in global market is still very subdued, barring North America most major global importing economies continue to remain under stress, so the export trend is also not very encouraging, he told CNBC-TV18.
Given this tough export environment and saturated market, he suggests exporters to diversify and focus more on non-traditional markets like Latin America, South America and Africa. Meanwhile, Munjal is hopeful of seeing improvement in automobile sector growth in next few months.
Below is the edited transcript of Sunil Munjal's interview with CNBC-TV18
Q: First a word on the most recent recommendations with regards to foreign direct investment (FDI) - how likely is it for it to come through? What is your sense of whether there is actually that much late in demand right now to get FDI or for FDI to come into these sectors?
A: These are all certainly very good and very welcomed recommendations but this has been in the making for a while both investors in India and overseas have been asking for raised caps on investment in number of such areas including defence, telecom, insurance and retail etc. How much appetite is there?
That is really a million dollar question right now because of the global markets being slow and the rupee depreciating dramatically, the returns that people got on investments in India actually went down when they cashed out of fear. That is certainly an area of concern. But it is also clear that in the long-term and even the medium-term, India is a good investment so, we will certainly see interest from investors and potential investors as we roll out these policies because between studies and actual policy roll out there have been gaps. I hope this time it will be quicker and we will get to see the announcement being made.
Q: Was the international trade council at the Confederation of Indian Industry (CII) disappointed with the trade deficit numbers which just came in particularly on the export front which seem to have been recovering but then we had a very sluggish month the last time around is the currency really working in favour of exporters because ideally you would have wanted to see or expected to see a bit of pick up?
A: Absolutely. You are right that exports are a big concern right now. Frankly, I am not too worried about month to month figures but these can be misleading. Sometimes one has large consignments; large exports in one month and not in the next month which tends to queer the pitch for these numbers. But, what we need to see now is the trend which at this moment is not very encouraging because there is a global slow down and because of the slow down customers are very-very aware.
As the rupee depreciates they do not give one the same pricing, they actually change the pricing in dollars, expecting one to get the same value in rupee so, this is happening more and more. It happened in textiles, it happened in leather goods, it happened in jewellery, so, sector after sector is now going back to the government and saying, that while we had asked you to allow the rupee to ride or the dollar to increase. But frankly, it has not been a great deal of benefit to the exporting committee besides releasing pressure.
But the overall sentiment at this moment globally is still very wary except North America which is showing some improvement, rest of the major global importing economies are still under fairly severe stress which makes it tougher for India to export. It is in fact, a smart thing that India is now trying to diversify its export basket and going to the more non-traditional markets or markets where it has not being going earlier expanding in areas of Latin America, South America, Africa, also focusing on Asia. Within the region we have very-very low export and we need to increase in this area. There is awareness but the action is still slow right now.
Q: How do you think corporate India will deal with this reset in the currency that we are witnessing at this point, not just in terms of what it will do to their balance sheets currently but what it means to access to capital going forward because now people will think many times before accessing global capital the way the currency has being moving?
A: The impact on balance sheet fortunately is not very significant because the companies who have been big borrowers in large number of cases are also big exporters. So, they have a natural hedge built into their business itself of the currency fluctuations. Of course, many have been affected because if they were to get an increase in their revenue due to the exports that they were expecting in any case so, this was a little bit of a shock for them.
In terms of borrowing, that is a less difficult one because the expectation is not for the rupee to continue to decline further at the pace that it has declined over the last six to eight months. In future, the expectation is for better stability in improvement. What companies are now saying is we prefer stable rupee. We do not like fluctuations whether it is going up too rapidly or going down too rapidly. Both are hurting business. We hope for the rupee to strengthen but continuing to show a gradual strengthening over time.
Q: While that maybe the preferred choice it is not necessarily the outcome especially given the kind of global context we have right now the question is what exactly is corporate India priming itself for a couple of months down the line are you all getting used to the fact that the rupee has been in a steadily depreciating phase and that is probably a perception as well that people have of the country?
A: The reality is there is no expert who can tell you where the rupee is going right now. There are of course many guesses and strangely the gap in the guess is fairly large some say it will go up and some say it will go down. The international impression about India is the markets still continuous to be good.
What worries people is the policy announcement or sometimes the lack of it and fortunately the government in the last few months has constantly tried to reassure investors both in the developed market and developing markets to look at India as a potential good investment but they don’t seem to be quite convinced because they are not breaking down doors to bring in large investments.
We had FDI in multi brand retail announced and we have not seen money put in the ground so far because there are number of questions people have. Hopefully, the Mayaram committee recommendations will get accepted and also the policy to operate in India will become easier. These are the two things which people are looking forward to. The government certainly has made the intent known that they would like to simplify some of it has been done but there still a lot of work to do.
Hero Motocorp stock price
On August 21, 2014, Hero Motocorp closed at Rs 2557.55, up Rs 11.70, or 0.46 percent. The 52-week high of the share was Rs 2775.05 and the 52-week low was Rs 1834.10.
The company's trailing 12-month (TTM) EPS was at Rs 106.33 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 24.05. The latest book value of the company is Rs 280.43 per share. At current value, the price-to-book value of the company is 9.12.
READ MORE ON foreign direct investment , FDI, defence, telecom, insurance, retail , rupee, Confederation of Indian Industry, CII, dollars, textiles, leather goods, jewellery, North America, Latin America, South America, Africa, , Asia, multi brand retail , Mayaram committee
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