"Recent government reforms have boosted the investor sentiment. The investors are willing to invest in India and the mood seems distinctly positive," says Anup Bagchi, MD & CEO, ICICI Securities in an interview to CNBC-TV18. According to Bagchi, investors want government to deliver before Budget and any major foreign institutional investor (FII) flows can be expected only post Budget.
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Further Bagchi adds that money flow in India has improved in the last six months and the funds are now shifting from debt to equity funds.
Below is an edited transcript of Anup Bagchi's interview on CNBC-TV18.
Q: How are investors viewing India ahead of the Budget, are they a little more optimistic due to which you could see increased buying in the run up to the Budget?
A: I think market has already run up and they think, after October, much has been done, much has been said but they are thinking that market perhaps has run a bit ahead and they will look into the Budget and see whether we are walking the talk or not. If we are, then market is going to run up quite significantly. For investors, the mood seems to be very distinctly positive than what it was when I had visited here six-seven months back.
The investors are willing to invest in India, there is a large turnout, very interested in meeting Indian companies but at this point of time, let me look at the Budget, let me see if you can indeed walk the talk and then we will again take a call positively.
Q: What did you make of the jitter both on Wall Street and across Asia in the past 24 hours? Is globally, a lot of credit has already been given to the growth impulses or should we just ignore this downturn and still believe that at least this quarter is going to see a lot of money coming into equities?
A: No, in fact in very large fund houses there have been movements, money is moving from credit to high yield credit and is just a matter of time, it will start to move from high credit into equities. That is one.
The second trend I gathered was that six-seven months back, both India and China were question marks. Now, money has started to flow into Asia. We do not get so much Indian money from dedicated Indian funds but from allocation of global emerging market. That is also turning positive.
So, from an Indian perspective, there is optimism and they feel that if you walk the talk, money will flow in. Most of the funds here are underinvested in India and they see that if growth comes back, they will invest in the Indian stocks.
Q: Looking at the results so far and other trends, are you getting any sectoral preferences for Indian companies, like we know last year was the big year for Fast Moving Consumer Goods (FMCG) companies. Information Technology (IT) was ignored. Is there any such trend now?
A: I am afraid that on the infrastructure front I still don’t see any positivism coming in. Everybody is quite skeptical. Everybody thinks land acquisition, everybody still thinks that now things have to move in India and it is not just policy and nothing can dramatically change overnight. On the infrastructure side, I did not hear the noises and the signals. They are still very positive on India. On other sectors however, they are very positive.
Banking sector and we have a very large Banking & Financial Services Industry (BFSI) participation here. Almost 92-93 percent of all non-performing assets (NPA) banks where if you take the banks and the NPA 92 percent of the total NPAs are getting covered of the banks who are participating here and all of them unequivocally say that things seems to have peaked out as far as NPA is concerned. So that is a very positive.
Ofcourse, questions are being raised that is it sustainable because in Q4, there has been a dip and banks have shown outperformance in NPAs, but the question seems to be that is it sustainable? But all banks seem to be quite sanguine that it looks like the worst is behind us and we have topped out there.
Q: If for Budget, we get a figure of 5.3 percent on the fiscal deficit, do you think after that the market is likely to rally? Is 5.3 percent already factored in and the government needs to do a little more on that to see a substantial rally since investors are positive on India and we want to see something by way of a figures, is 5.3 going to do the trick with the Indian markets?
A: This discussion happened quite deeply in our macroeconomic track and the issue was not just fiscal deficit. The issue was fiscal deficit and what happens to the current account deficit. The consensus out from there is not so much of magic of 5.3 percent, of course that is there in the heart but what is the path towards 5.3 percent?
People are quite keenly looking at the whole financial inclusion part and are saying even if we see sign that within three-five years, we are moving structurally towards correcting it, that is going to be a much bigger positive. 5.3 percent as a number, how do we get to 5.3 percent, people are looking at it much more positively than the figure 5.3 percent.
Other thing on which people are quite positive is disinvestment; we will touch the figure of Rs 26,000 crore, which six months back looked almost impossible. People are quite enthused that we have been able to raise that kind of fund.
Third thing, if currency starts to move to 51-52, half of the current account deficit problems itself starts to go down. On the interest rate part, it is interesting because people don’t believe that while everybody says that interest rates must be there and we require a lower interest rate regime, but everybody does not believe that it is possible under the current circumstances.
If fiscal deficit remains and current account deficit remains high, even if we notionally cut interest rates whether it will get passed on to the economy, passed on to the end-user or not, sustainable manner, people suspect that. People are looking from economic point of view, fiscal deficit more importantly how and whether it is structured or not and what do we do on the current account deficit.
Q: You also had a rural panel discussion, a large part of demand was coming from rural areas, is that showing any signs of tapering of, what about the big problem of rural wages which was a big input into inflation, anything on these lines?
A: Rural wages, even if you look at the Reserve Bank of India (RBI) data which came out, rural wage inflation was 22 percent in the first half of the decade and now it is running at 18 percent. Rural wage inflation has dipped a little bit leading to a slight dip in consumption.
On the urban home appliances, they are distinctly seeing a slowdown because of interest rate hike so disposable income is coming down. However, on the rural, everybody seems to be unequivocally enthused about the fact that if Aadhaar comes in and direct cash comes in, it is going to be a very big leg up.
Third thing, in rural areas people gather and there is a lot of appetite and efficiencies coming in. For example, we had rural housing participation here. They said that there is a big efficiency coming in rural when people start to invest in good housing, good sanitation. So, there is a big revolution happening.
In the crowd, there was almost a surprise that this group was so positive that things are going to be better while the investment group of course was very gloomy that it is not going to move up. The credit went to the fact that we have become one country because of roads and connectivity and accessibility and that is going to play a much bigger role in the times to come.