Worst in banking over, see consumption picking up: Ambit CEO

Wadhwa also lauded the efforts of the government to be able to implement GST in a relative short time. The government is trying to make GST as inflation neutral as possible, he said.Below is the verbatim transcript of Ashok Wadhwa’s interview to Latha Venkatesh, Sonia Shenoy and Anuj Singhal on CNBC-TV18.Latha: Before we get to the markets and your investor conference which we are awaiting with a lot of interest. The Goods and Services Tax (GST), you are taxman for the longest time, do you celebrate it or do you think there is time to celebrate?A: We must celebrate and what we must celebrate is the resolution of this government to be able to implement GST and to be able to address all the impasse situations in a relatively short frame. We have all worried about when it will come and how long it will take for the GST to get implemented. So, there is complete clarity that the government is committed towards rolling out GST on April 1, 2017 and that we must celebrate.Having said that anything new of that magnitude is going to be chaotic. It is going to take time for the whole supply chain to get fully settled and I would believe that that chaos and that confusion in the short term will mean some element of duplicity, some element of inefficiency in the system and therefore until those issues get fully resolved the impact of GST will not necessarily be fully known and fully appreciated. Therefore there will be more time to celebrate a year down the road.Sonia: In terms of the sectors like fast-moving consumer goods (FMCG) there clearly is some bit of relief for some of these cigarette makers, some of the FMCG companies like Colgate where the tax rates are much lower than what would have been expected earlier. How do you read into that and what do you think that could mean for the sector say over the next one year?A: I personally believe that the government's focus was A, implement GST and B, try and make it as inflation neutral as possible, perhaps even aid a little on the side of inflation therefore you can see the bias. The bias is very clearly in favour of goods and commodities of mass consumption and to that extent those companies and those products and those goods will certainly benefit. The general rate on FMCG all put together was between 22-25 percent. It has now been put into the 18 percent category. Most people thought it may be put in the 28 percent category therefore this is certainly relief and I have not seen the market today but I am saying perhaps the only companies that are doing well in this environment are the FMCG companies because of the positive bias of the Finance Minister.At the same time this government has made it very clearly that we intend to be tax neutral if not tax positive, that we intend to ensure that there is adequate amount of tax collected to be able to compensate the states and where is it going to come from if it is not going to come from normal goods, it is going to come from luxury goods. And there you can see again the bias again from the luxury goods is also quite obvious. So, in that sense the government is playing up its intent quite clearly and quite transparently.Latha: Let me come to the investor conference. What are you all picking up as the main themes. Are you looking at the economy picking up, are you looking at pro-growth oriented sectors, financials, industrials, capital goods.A: It is interesting, our London conference was on June 26 and the Brexit vote was on June 24, it was a Friday and a Monday and almost everybody expected the United Kingdom to stay in. Somehow we had a contrarian feeling and it is interesting. We actually invited a very imminent economist in United Kingdom to talk about impact of Brexit and that was weeks before Brexit actually happened.Latha: So, now you all are holding two days before the Trump election.A: We are actually holding it on the day.Sonia: So, what is your feeling about the election since you got the Brexit right?A: Yes, we are holding it on the day. I have never been good at predicting polls and politics but if I look at the market I always believe that the markets are perhaps the smartest indicators of what the likely outcome of things are.Latha: They got Brexit wrong.A: They got Brexit wrong but this time around if I look at what is happening over the last two days and I read the newspapers and all the polls it is going to be very close, to the wore and it will be only foolhardy who will predict what the real result will be, but it is going to be very close, close enough for the markets to be uncomfortable now.Sonia: So, getting back to your conference then you have a lot of interesting companies participating. I noticed many from the banking space. What is your view now on financial space considering that we have had some hits and some misses this earnings season?A: Obviously the quality of assets has improved but then you are talking about quality of assets having improved without the public sector banks and perhaps ICICI Bank having still to announce their results. Axis Bank has clearly shown serious deterioration in the quality of asset. But overall, otherwise there has been a positive bias.Certainly in the retail asset segment there have been no negative surprises and that has been clearly very positive outcome. I would like to believe that the worst in the banking sector is over. There is an acknowledgement of the magnitude of problem. There are different solutions that are being proposed and thought through from capitalising, raising new capital to monetising noncore assets by the banks. It is a slow process, as I always say acknowledgement is the first step of resolution and to that extent, I am positive that that acknowledgement has happened and that there are banks now quite actively engaged.The resolution of the Essar asset, the discussion on the Reliance towers business, these are large transactions and the fact that these transitions are happening and these transactions when many individuals who are circumspect thought they wouldn't happen is a very positive indication. It is an indication that the banks are active in addressing the solution. It is positive that corporates Rae realising that they need to find solutions to address the banking problem and in that sense if there is a collaboration between the banking sector and the corporates you will see some or many of these assets addressed.The loans are in stress doesn't mean that they don't have good underlying assets and if there is a mechanism to monetise those underlying assets some of the stress will get addressed automatically.Latha: Every bank in the country tells me we will be fine only if growth comes, otherwise, there are fresh problems. So, what is your view on that at Ambit and at the conference? Are you looking at this upturn in the economy at all or do you have to pick stocks without that premise?A: Our view is that if you look at consumer durables and if you take data for the last three months, there is clearly positive bias in terms of growth, two-wheelers were, four wheelers are starting to happen. The first two weeks of October were relatively weak. But if you look at August, September, November, they were quite positive.Latha: We saw very good numbers in tractors, but when we looked at all the FMCG guys, it was actually contracting.A: Two-wheelers were alright, four-wheelers were perhaps not yet showing. We always believe that the consumption pattern starts with two-wheelers. If two-wheelers have a positive bias over a three month period then that is the starting of a positive consumption cycle. We think that that process may have begun. It is not very visible yet, but we think that that process may have begun. This quarter is very critical to demonstrate whether that growth is a real growth or not. If as expected this quarter shows positive outcome on that segment, we think the consumption cycle and the uptick in consumption has begun. It is going to be a few more quarters before general consumption picks up and then it is going to be few more quarters before the investment cycle picks up. We think that somewhere in the first half of the next fiscal year, you will start seeing very positive outcome of a strong consumption cycle and then perhaps in the following year which will suit the ruling party well, you will probably see also an uptick in the investment cycle. So we have a positive bias at this point of time. Of course, global events, as we see, both what Fed does as well as what happens in the US election. It has an all-encompassing effect, it can have a significant impact on the sentiment one way or the other.Sonia: I wanted to ask you your thoughts on the whole Tata Group saga. It is unfortunate that after such a long and illustrious history, the group in itself is mired in so much controversy. But as long-term investors in these stocks, should one be perturbed?A: What this unfortunate episode shows is that it does not matter who you are, there are corporate challenges, there will be corporate disagreements and there will be actions taken which in the short-term may perhaps look a little different from the character of the group. Let us not also forget that Mr Tata, when he took over in 1991 had to face somewhat of a similar situation. We had the same debate, a group which has never been mired in controversy, how come that group is getting mired. And we all started asking questions about is he the right leader, etc. Many years later, his actions proved to be very correct. I am not saying many years from today what will happen. In this matter, I have no idea and no knowledge of facts as to why this has happened and how it has happened. All that I will say is that it has created some element of debate within global investors, I happened to be in the US when this happened and almost all discussions were sabotaged because everybody wanted to discuss why this could have happened because the Tata Group as we all know is in many ways better than the best, certainly within Asia. But it shows that it is a corporate group and I am a great believer in the philosophy that no individual in a company or in a country is indispensable. And I always believe that you always find the right leader once the incumbent steps out.Sonia: So, they will come out unscathed you feel?A: My own view is that it is a very strong group and I keep going back to the 1991 episode and I keep saying I was around and I know how much controversy Mr Tata’s actions made. And it was quite acrimonious at that point of time. And it was not just one. And there were many people there and many powerful people from the Tata Group and over 20 years. What a wonderful job.Latha: You have to give us some idea of where you see the markets one year down the line, two years down the line. Will you keep the faith? Is Nifty going on to achieve higher highs in 2017?A: My colleague Saurabh Mukherjea is an expert on this subject, but I will say this that we certainly have a positive bias.