In an interview with CNBC-TV18, Ruchir Sharma of Morgan Stanley, said the Trump factor will be a game-changer for global economies and if destination tax goes through in US then it will impact many emerging markets significantly.
In a contrarian view, Ajay Tyagi, EVP & Fund Manager, UTI MF, says that India will be relatively less impacted over Trump reforms because 70 percent of the country's GDP is domestic consumption.
Talking about the micro finance space Tyagi said that micro finance institutions (MFIs) will be under pressure if stress in rural economy extends to fourth quarter of this financial year and first quarter of next finacial year.
Also, he remains negative on the telecom space and says deals like that of Reliance Communications new tower deal will alleviate the pain for other players.
There will be pressure on realisation for all companies. To match up to the network quality of Reliance Jio, the incumbent players will also have to spend more towards further spectrum acquisition and also for laying down the network. So capital expenditure (capex) intensity will not come down, said Tyagi.
Below is the verbatim transcript of Ajay Tyagi’s interview to Ekta Batra and Prashant Nair on CNBC-TV18.
Ekta: We were just hearing out interview that Shereen Bhan was having with Ruchir Sharma of Morgan Stanley. One of the things that he spoke about was that the Trump factor will be one of the most game-changing things for global economies. What is your sense in terms of whether you have looked into the fact that there could be a destination tax that the US could be thinking about and how it could maybe impact outsourcing models?
A: Quite frankly I am not aware about this destination tax and how it is being moved there. However, all I can say right now is that if this were to play out then perhaps amongst the emerging markets basket, India is still the most insulated because of the fact that 70 percent of our GDP is domestic consumption.
So, while there could be second order impacts on India because of what you just mentioned, but comparing it to other emerging market economies, my conjecture and my sense still is that we would be better placed.
Prashant: Just come in on the entire microfinance space if you will, without names or anything, you think they have corrected enough, reflecting all the stress?
A: I think the entire NBFC space including microfinance companies have corrected. Now, you will have to be very specific in terms of evaluating each one of these because the business model here varies quite a bit between one NBFC and another within the same domain to which they lend. Of course MFIs are a different ballgame altogether. So, I don’t think that one size fits all approach can be applied to the NBFC space.
Within the MFI space, there are two sets of problems. One is that even if we keep the rhetoric aside in terms of what some of the political parties have been talking about especially in states like UP and Maharashtra, the fact is that if demonetisation is going to have impact on rural economy beyond just this quarter and therefore into Q4 of this year and Q1 of next year, there would definitely be some amount of stress both in terms of collections and also in terms of advances growth.
To add to the woes, this once in a while thing which happens in the MFI space, which is that some political parties are now talking about waivers to these people and that if it moves to the next level, it can have serious implications for the entire sector.
Ekta: Just a quick last question, have you looked at the telecom space? There is a likely deal which Reliance Communication will strike on its tower business. What is your sense in terms of whether any of those are looking attractive in terms of at least valuations?
A: On the telecom space, we continue to remain negative. While these kind of deals may continue to happen and they might alleviate the pain for these specific players, but the larger story there is that there is going to be pressure on realisations for all companies. I think just a couple of days back the biggest telecom company in the country has come out with certain rate plans to match up to the offer made by Reliance Jio to its subscribers.
So, such kind of things will continue to happen and thereby rendering pressure on realisations and therefore margins. Don’t forget that to match up to the network quality of Reliance, the incumbent players also will have to spend more towards further spectrum acquisition as also for laying down the network in terms of fiber optics and micro-wave and so on. So, capex intensity is not going to come down.
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