The rally in equity markets can be put down to government reforms like UDAY. They have reacted to a good monsoon forecast, says Rashesh Shah, Chairman & CEO Of Edelweiss Financial Services.
Speaking on the sidelines of the Edelweiss Credit Conclave, Rashesh Shah, Chairman & CEO Of Edelweiss Financial Services said the tide is beginning to turn for India.
"Consumer spending is back and so is credit growth," he said.
The asset quality review kicked off by the Reserve Bank of India last year will bear fruits soon, he said. In the next two quarters or so, investors will have a handle on the process of bad loans that are being cleaned up.
There has been positive demand for bad loans from asset reconstruction companies (ARCs). Edelweiss Asset Reconstruction Company itself has bought bad loans worth Rs 45,000 crore from banks over the last four years, taking a 50 percent haircut on them.
Soon, more banks will proactively come forward to sell their stressed assets to ARCs, he said.
The rally in equity markets can be put down to government reforms like Ujwal Discom Assurance Yojna (UDAY), he said. They have reacted to a good monsoon forecast.
However, there could be some shocks down the line, mostly from China, which could impact India, he added.
Below is the verbatim transcript of Rashesh Shah’s interview with Nigel D’Souza CNBC-TV18.
Q: First give us a sense at the conference that you are holding. What exactly is the mood over there, are you seeing any kind of demand in terms of stressed loans, could you give us some details?
A: We are having this credit conclave at a very interesting time in the Indian economy because we do think that the last three-four years we have seen a lot of developments in the credit market both positive and some not so positive. However, we think the tide has started to turn. The economy is coming back. We are seeing some amount of consumer spending coming back and we are seeing some amount of credit growth also coming back accompanied by the cleanup of the stressed asset portfolio that has been built up. I think asset quality review (AQR) process started by Reserve Bank of India (RBI) last year is in a way what we call the beginning of the end of the non-performing assets (NPA) cycle.
I think the AQR process has started the cleanup activity which may go on for the next three to four quarters but I do think that in the next one or two quarters, investors and market will be able to get a good handle on quantifying the bad assets, the process of cleanup. The banks have been coming out with results; a lot of banks have been very transparent in terms of how they see the stressed asset situation. All this is helping and I do think that in the next three to four quarters, we will see some fairly robust activity accompanied by real growth in the credit markets coming back.
Q: You mean to say that there is demand that is coming in from asset reconstruction company (ARCs), there is plenty that is on sale so do you believe that there is demand coming in?
A: There is a huge amount of demand. Our ARC, we are now the largest asset reconstruction company in India and we have bought about close to Rs 45,000 crore of assets from banks over the last four years. We have bought at an average price of about Rs 0.50-1.00. So, at about 50 percent haircut which is a reasonable price. We are seeing a lot of banks proactively coming up, they also have an idea of how to restructure and they work alongside with us.
They sell the asset to us and I do think that in the next two years because the banks have also provided, what happens in the asset sell from a bank to an ARC, the first requirement is the bank has to identify it as an NPA and then provide it. Once it is identified and provided for then it becomes a lot easier to sell to an ARC.
I think in the last two years, a lot of banks have been doing this – identifying and providing. Now that that phase is over, the real sale of assets to ARCs will start and we are seeing a lot of international firms, a lot of international stressed asset funds are coming to India. So, even the capital that is coming in to buy the stressed asset is going up very significantly which is a very positive step.
Q: We have a superb run in the last couple of months, 1,000 points rally. Two very good series we have had as well, what is your take on the Nifty, could you give us your take in the near-term as well as in the long-term, 2016, how does it look, new highs will be made?
A: I think overall the equity markets have been fairly robust accompanied by India’s overall economic growth. There are a lot of positive developments, the reforms that the government is initiated; I am very positive on Indradhanush, on Ujwal DISCOM Assurance Yojana (UDAY), on what is going in the road and the transportation sector. All of those positive things are starting to have an impact. I think the market has also been buoyed quite a bit by the expected good monsoon this year. After two bad monsoons, a good monsoon is going to be very important for the market and the economy to come back.
So, on the Indian front, a lot of positive developments but the overhang on the market continues to be the international factors. The global markets are in a very bad shape and our only fear for the remaining part of the year would be any adverse development in the global economy especially China. If something goes wrong then it will have impact on us. So, we will see some amount of volatility induced by global factors but a lot of growth and stability will come from Indian factors and I think the monsoon is very critical and hopefully if the monsoon comes out well, we will see this positive sentiment continuing all the through that inter-spread with periodic bouts of huge volatility because of global factors.
So, I think investors should be prepared for some amount of volatility because of global factors but they should remain positive on the India growth story.