Sanjay Nayar, Country Head of KKR India believes rate cuts from the RBI will help sentiments going forward. Most businesses in India have done well in the last two to three years in refinancing debt and improving EBITDA, added Nayar. However, he reiterated the fact that the companies are struggling to put in new capacity. He also feels, Indian companies are constrained by policy inaction.
Also read: RBI may keep policy rate on hold; CRR cut possible: HSBC Here is the edited transcript of the interview on CNBC-TV18. Q: We are meeting on the eve of the credit policy. What is your sense about what the governor ought to do? Do you think a rate cut at this juncture will help? Or will it harm?A: I think that rate cut would not harm. A small rate cut always helps but, I don't think it goes to the crux of the issue which is the whole supply side constraint. My experience listening to the companies, business groups and business houses shows nobody is making fresh commitments on capex and investment spending and those numbers are down.
A lot of those numbers indicate that there is a real slowdown in terms of output and investment. I think it is policy issues and reforms that probably need to be attacked first.
Rate cut obviously doesn’t hurt new investment decisions. It will probably become better for businesses. But, I believe if they are going to do a new project they can always raise money in a very competitive fashion. I don’t think rate cut is the real trigger.
Rate cut will definitely help sentiment. It will help the fiscal deficit itself, but not anything more than that. I think we have got too many other red lights flashing and I don’t think rate cut is the answer to everything here. Q: You have invested as a PE firm in many small businesses as well, whether it is retail outlets or something like a Cafe Coffee Day. Do you think a rate cut will reduce the distress level at a corporate India level?
A: Firstly, I think debt levels on corporate is much lower. I don’t think debt levels are high. I think there is a clear segment of companies which are highly debt laden. If you just keep them out of the picture, most of the businesses today in India have done a great job in the last 2-3 years in tightening the belt and being very focused on refinancing as well as generating real EBITDA and paying down debt.
I think the debt position is very good. I think companies are now struggling to achieve the growth rates, either to satisfy what the market expectations are or in a private situation to be able to deliver the return to shareholders. I think growth is the larger issue. How do companies grow? They grow by either increasing capacity because there is a huge market or they have pricing power which is not the only tool and they want to improve operations. I think companies in India do a damn good job on all the aspects.
Where they are struggling is in putting up new capacity and just the physical and real asset growth. At least from the lens where we see, I don’t think it will change the sentiment from the point of view of an interest rate cut or whatever is suddenly going to help the interest cost. I don’t think interest cost is a big issue anyway, not for these companies.
What they really need to do is to be able to grow and in different forms they get held back or delayed. They are being constrained by policy actions or inaction or contradictory messages. Q: What exactly do you want from the government? Is it some kind of legislation? Or is something else hurting? What kind of action do you want from the government?
A: Different industries have different kinds of requirements. I think very cohesive and decisive leadership that can pull together all the different parts of the government to translate growth impulse into real action is the key here.
It is very difficult to pick company by company, but just taking the situation of the power sector today, the debate about coal has gone on ad nauseam and there are power plants that need to get started. Nobody can deny that we need more power capacity. Pulling things together, I don’t know how these things work in the government but, clearly a decisive leadership pulling things together and translating that into action will really help companies make investment decisions with confidence and the money will automatically come.
There is enough capital chasing India, both in long term equity capital as well as long term debt and you can see the kind of refinancing Reliance and all do. Big groups can always get good financing and private equity is a phenomenally important asset class today for a country like India where companies need long term equity and public markets are never going to be able to absorb this kind of a flow.
Private equity can play a very critical role not only to help companies improve, but to give them structurally long and patient capital. You just need the Indian businesses to make the decisions to invest which in turn goes back to the point where they should feel confident about it.
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