Demonetisation: Financier Rashesh Shah says business 'almost back to normal'

Earnings growth this quarter might remain soft, but investors are in the mood to invest and there is palpable optimism around India, said Rashesh Shah, Chairman and CEO of Edelweiss Financial speaking to CNBC-TV18 on the sidelines of Edelweiss India conference.

Corporate India has managed to limit the impact of demonetisation by trimming discretionary expenditure, he said. With the unorganised market taking a backseat post the note ban, he said India Inc has also been the unintended beneficiary in terms of market share. “Demonetisation has underscored the strong resilience of the Indian economy and reinforced investors’ faith.”

He also shared his take on the demonetisation impact on different sectors: Barring a few north-based microfinance companies that are still facing collection issues, financial services companies are mostly back to normal, he said.

Similarly, real estate in the affordable segment has continued to grow. It is only the premium segment that has seen some slowdown, but that cannot be fully blamed on demonetisation, he adds.Below is the verbatim transcript of Rashesh Shah's interview to Latha Venkatesh, Sonia Shenoy & Anuj Singhal on CNBC-TV18.Latha: How does it look like? What is the general investor mood? Does it feel like we have had too much of stock buying and rallies or is it that even at these levels people are chasing?A: The investors are in a mood to invest. There is a palpable optimism around India and the way this entire demonetisation exercise that happened, has reinforced how strong and resilient the Indian economy is. It has been only about three months and we have bounced back from all the chaos and the inconvenience that was there and it almost seems like business is back to normal especially in the organised sector where the large part of Indian corporates exists, things seem to be coming back to normal in a big way. In fact, one of the other unintended consequences that seems to come out of demonetisation is that the market share of the organised sector has gone up as compared to the unorganised sector. So the corporate and the investors are optimistic about how the coming year is going to be.Anuj: The key theme that stands out this time is the profile of investors who are attending the conference. You have some of the biggest domestic investors and foreign institutional investors (FIIs). How do you see the fund situation panning out from here because this rally has been all about domestic participation?A: It has been and all of us have seen the impact of systematic investment plans (SIPs) and almost about Rs 3,000-3,500 crore every month is coming into equity SIPs which itself is almost Rs 40,000 crore a year, which is not a small amount of flows that are coming into the equity market but along with that even the profile of the FII investors has undergone a sea change in the last couple of years and we are seeing a lot of long-term, long only investors -- you would have seen the Canadian Pension Funds and other long-term insurance companies and others are looking at India. So though we have seen some selling in the last few months, a lot of that has happened out of exchange-traded funds (ETF) and the hedge fund money because they were reallocating based on US dollar getting stronger and those kind of hypothesis but if you look at the profile of investors for the last couple of years -- I think after '14 the persuasion on India changed after the taper tantrum and all that and the new government, inflation coming down. A lot of long-term investors, the pension funds who invest for 20-30 years have started coming to India and we are just at the start of that entire wave of the pension money, insurance money, the super annuation money coming to India. Sonia: You also have one overarching theme that is demonetisation. What has been the feedback so far? Are we done with that story, has the impact played out completely or are you getting a sense that we could see some more downgrades in earnings purely because of demonetisation impact?A: I think from earnings point of view maybe there will be some dampening for this quarter also though Q3 was not as bad as people expected and when we talk to corporate a large part of that have been able to manage the earnings in a way by cutting of the discretionary expenditure. I am sure you would have seen that a lot of advertising and all has been cut and people are postponing it post April saying that for the next three-four months we will scale back on the discretionary, the optional expenditure and try and ensure that the profits and earnings keep the momentum. So for the large part of the corporate sector, fast moving consumer goods (FMCG) companies, financial services companies, things are back to normal. We are seeing a little bit of stress in the unorganised sector, still there, which will continue until remonetisation is complete, which we expect by end of March and in the financial services sector, only some of the MFIs are still facing some collection pressure especially the north based MFIs. Interestingly the south based MFIs have not been affected at all. So it has been very interesting and what it has underscored strongly is the resilience and the strength of the Indian economy that after such a big exercise you still come back so strongly and things can come back to normal so sharply. Latha: Since demonetisation is your theme and I am sticking to those, the real estate sector is believed to have been impacted and will continue to remain a little lymph, more so because of demonetisation. You all are still very bullish on building material because you believe that the formal sector is taking away the informal sector's share, but still if overall demand is damp, you don't fear that?A: Ironically in the month of December and January all the stocks we have seen, the affordable segment in real estate has continued to grow and there were sales in December, there were sales in January, so the affordable sector that we are looking at, apartments between Rs 25 and 30 lakh - that has not been impacted, in fact that has got stronger because interest rates have come down, home loan rates have become cheaper and as a result of that we are not seeing any impact of that. At the upper end, at the premium segment which is largely mumbai, Delhi and little bit of Bangalore, there has been a slowdown but that slowdown was for the last couple of years. So it has not got worse than what it was because of demonetisation and we expect that we will continue to be there but that is why upper end margins are higher while in the affordable segment the margins are not very high. So as long as the sales are going on in that segment, we feel fairly optimistic because there is underlying demand for housing especially not just the white collar; we are seeing huge amount of demand from blue collar workers, they are all upgrading to one bedroom kind of apartment and that upgradation is going on in a big way on the outskirts of places like Mumbai and Delhi and also tier two, tier three cities.