OB: Rajesh, do you agree that there is a structural shift away from real estate into equities?
Saluja: Investment demand right now has come down but there is a big demand for mid-income housing. How many people in India have their first house? That class is not the younger generation of today who is going to buy a car and wants to Uber it. We are quite some time away from that. The fact is that a lot of Indians still don't have their first home and that supply-demand mismatch will be exist. But that’s from a consumption point of view. From an investment point of view, there are clearly lesser opportunities. I don't know whether it will change again over a period of wealth cycle, but over the next 5 to 7 years, people will start buying real estate. However, there is no denying that because of financial inclusion, because of technology, and because of distribution, there is much more information on financial products getting disseminated across the country. These are long-term structural changes. My personal belief is that the 4% number [percentage of equity of overall household saving] will easily touch 8-10% over the next 5 to 7 years.
OB: Given that the economy hasn't really gone anywhere compared to the rosy picture that we were all given to see, do you see the government, if I may say, talking up the market, from hereon to the next year?
Saluja: What has gone wrong?
OB: How many quarters of great growth have you seen?
Saluja: Look at the reforms that the government has put in place.
OB: Is that something that the business is also feeling?
Saluja: We deal with promoters who have got hit because of GST, and because of demonetisation. Earlier they could work the system and get business going. Today, it’s a level-playing field and everything is becoming online. The challenge is that the corruption below hasn’t stopped. By the way Modi didn’t promise that your business will start doing better, the promises were more about reforms.
OB: The promise was that the changes in policy would result in greater level of growth and that clearly has not played out.
Saluja: But we are still growing at 6-7%.
OB: Outlook Business had visited six clusters across the country early this year, but we didn’t get a sense that the we are growing at 6%. If you are not able to restore or keep up your image in the first three years, it is only natural for the government to push even further to ensure that you have something to show at the end of its term.
Das: Demonetisation and GST were the most sweeping changes in decades. So, you have to give it time to play out. The government has come out with the Insolvency and Bankruptcy Code. Now, that is a good start. Recapitalisation of public sector banks’ balance sheets needs to happen as they are the juggernaut that keeps the economy going. That’s what needs to be fixed and, thereafter, you will see banks getting more confident about lending. That’s when the credit offtake cycle will begin.
Rao: It’s not that the government hasn't done anything. It’s just that they have been hit by things beyond their control. For example, commodity prices going up, oil going up, currency depreciation…nobody anticipated all of that. So, the recovery and the benefit of some of those things are still to be seen. Hence, the gloom now. While there is good leadership at the top, the executors are weak. You need strong executors at the second and third rung, which, I think, Modi needs to build up. The next two years will be decisive for him. Hopefully, results should be visible over the next two years.
Hansraj: The fundamental problem that still remains is capex. Today, it is the government which is the big spender — be it roads, ports or power. Promoters will start thinking of capacity expansion only after utilisation levels start touching 70-75%. Today, India Inc is operating at 60-65% capacity. But, ultimately, you need money to fuel demand and the cause of concern is this: where are they going to get the money for fresh spending from?
Saha: My personal take is that it will take one-and-half year for the government to really get this going.
Umang: The government is also thinking differently. For example, it was a brilliant idea of cutting excise duty on fuel prices. It doesn't add to inflation and shows a complete out-of-the-box thinking.
OB: Over the next six months, what would be the key things to watch out for?
Das: Money flows, fiscal slippages, on account of stimulus, if any. Oil prices increasing more than what is anticipated and, the last could be geopolitics — be it the North Korea crisis or a standoff in the Middle East.
Hansraj: Primarily, oil prices and the Union Budget
Umang: I will keenly watch the fiscal deficit and what the government is trying to do about it. Second, would be the resolution of NPAs and, third, would be earnings growth.
Gumastha: How GST implementation plays out — as right now there is a short-term mismatch in working capital requirement. There is a lot of confusion and trade has come to a standstill. Second, how is earnings going to play out in the next two quarters and the third would be the global environment because liquidity is not an Indian but a global phenomenon.
Saha: Crude oil prices, a faster than anticipated Fed rate hike, and state elections.
Saluja: Earnings growth through the second and third quarters. The Budget, which I am assuming will be positive for the middle class and corporates as job creation is a big challenge for the government.
Rao: Earnings growth. fiscal deficit, and the third would be distribution of demand, be it in rural or urban India.
OB: One advice to the investor…
Das: Stay invested in equities and bonds.
Hansraj: Stay invested though the next six months could be volatile.
Umang: Don't get into long term bonds and try to stay at the short end of the curve. Stay invested in equity and don’t get out.
Gumastha: Taper your return expectations.
Rao: Be bullish.
Saha: Maintain your asset allocation
Saluja: Anyone under-allocated to equities, invest in large caps. Someone who has already allocated to equities, should look at alternatives to enhance return. Avoid all fancy products with high credit risks.
Rao: Stagger your investment into large caps as that is where the opportunity is.
OB: Thank you so much for sharing your valuable insights, and wishing all of you a great year ahead.