CRR cut will not have impact on investment demand: M&M

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CRR cut will not have impact on investment demand: M&M

M&M's Pawan Goenka tells CNBC-TV18 that he doesn't expect to see an increase in investment demand because of the cut in CRR.

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Excerpts from Markets Midday on CNBC-TV18 Watch the full show »

RBI aimed at increasing liquidity in the market by slashing CRR by 50 basis points, however, M&M's Pawan Goenka doesn't expect to see an increase in investments. According to him, the overall picture of the economy, volume growth and the possibility of a cut in interest rates is what will impact investment demand.

He goes on to say that RBI's move to cut CRR is a sign that the central bank is beginning to look at reversal of policies. "So this is sort of the first signal that the RBI is going to look at liquidity right now and ease liquidity, and perhaps if things improve, then reduce rates in the next policy," he said.

So will this increase in liquidity help  Mahindra & Mahindra  report a better Q4? Not really, according to Goenka. "If I were to talk about Mahindra specifically, we had very good third quarter and therefore I cannot say that fourth quarter will certainly be much different," he explained. However, he does expect this to have a positive impact in general.

Below is an edited transcript of his interview.

Q: What are your reactions? Do you think life gets a little easier for you?

A: More than improving liquidity with this move, the important thing is a signal that RBI governor has given of saying that they are beginning to look at reversal of policies that have been in place for last 18 months. So this is sort of the first signal that the RBI is going to look at liquidity right now and ease liquidity, and perhaps if things improve, then reduce rates in the next policy.

Liquidity is something that this change was a crisis mode. Liquidity tightening was happening but it is not a crisis mode, but I take it more as a signal which is a very positive signal, something that the industry will welcome and I am sure markets will welcome.

Q: Do you think as a person who regulates a lot of investment for a group the chances are now people will start pulling their plans from the drawing board?

A: I personally do not think that the reasons the investment plans would have been put on backburner had anything to do with liquidity. The money was not unavailable, so I don't think this by itself is going to have a large impact on investments coming back. One has to look at the overall picture and see if the economy is going to turn around, what volume growth the industry will see in coming years and if an interest rate reduction is going to come.

I am not saying by any means that the time was right for interest rate reduction. But till that happens, I don't think that's going to make a huge difference in thinking about investment, whether there is a time for us to become aggressive on investment.

Q: Would you say this much that the fourth quarter for a company like Mahindra & Mahindra would be better than third quarter? We have some softening of raw material prices globally and the rupee as well has strengthened to about Rs 49, so some bit of import costs will not be that bad. Net-net is fourth quarter likely to be a little better than third quarter?

A: If I were to talk about Mahindra specifically, in terms of volume growth and all we had very good quarter in third quarter and therefore I cannot say that fourth quarter will certainly be much different than third quarter. There are positive signs that one sees right now. A little bit that has happened in IPP and the CRR cut is the small step in the direction of bringing a little bit more confidence. So all these are positive signs and that should overall have a positive impact on Q4. I won't necessarily relate that to Mahindra situation.