Over the last week, equity markets witnessed sharp gains on the back of better than expected corporate performance and improved investor sentiment. Vikaas M Sachdeva, CEO, Edelweiss Asset Management told Sandeep Singh that while there has been no dramatic change, steps taken by the government over the last two years are starting to fall in place now and perception is shifting dramatically. Excerpts:
As a market player, how do you see two years of this government?
In the market people are generally bullish about this government but I think they (the government) took some time to settle down, which is why the expectations got dashed and the economy was not doing so well. Everything is starting to fall in place now and especially after the recent state elections, there is more clarity. People buy optimism but they like predictability and that is coming in now.
Over the last few days the markets have traded strong. Do you see momentum building or is it just a temporary gain?
The global news flow often pulls the market down but India has lot of energy bubbling and the moment you hear some positive development, the markets take off. News of BJP victory in Assam, global factors improving has turned the sentiment. Simultaneously global cues have also been positive, oil is up, prices are going up, housing data in the US has been positive, so the market movement is a mix of all factors. There is nothing that has changed dramatically but things are building and perceptions shift dramatically.
What are a couple of things the government has done that gives you confidence?
When the current government came to power they said that they will ease out bureaucracy, empower them and a lot of decisions will be taken at the ground level. While there have been ups and downs, I think responsibility and accountability has come at the ground level. Ministers at the top have been able to drive the passion down and we are seeing that in ministries such as roads, railways, etc. That all is also getting reflected in corporate results of companies such as Larsen and Toubro which has seen its order book grow. For L&T most of their margins are based on the execution of project and as a couple of the projects moved to 25 per cent execution stage, it started showing the difference. While that is the output variable, the input variable is someone in bureaucracy who started taking the decision. It is not 100 per cent perfect yet but things are happening.
While sectors linked to public spending have started to move up, when do you see action beginning in the manufacturing space?
There is still a lot of existing capacity in the manufacturing sector. Most of the profits that are coming now is because the companies are moving from a situation of underutilised capacities to higher capacity utilisations and that is all a function of demand. So it will take time, but not as long as people expect it to be.
Do you see money flowing into India?
The trend of money flowing into India is going to be on the positive side because there are not many options around. We have strong growth despite the current global conditions and we will grow much faster when the global demand rises. While there could be some global risk factors that may delay the inflow but by and large people are gaining confidence. Companies that have invested in China and are successful there want to succeed in India too and companies that failed in China because of local issues don’t want to miss out on India. FDI flow will be steady to positive.
When do you see earning expansion?
Earning expansion in the real sense in terms of real demand going up, will largely depend on the monsoon. If monsoon is fine, it will take maximum two quarters.
Several public sector banks announced big losses and high NPAs in Q4 2016. How do you see this clean up ?
The markets are very welcoming about it but equally there is a lot of stress. When you have NPAs, in the way they are and you are talking of distress sale of assets, the stress comes but it is a necessity to cut it out and start afresh. So while everyone is going under stress at different levels, by and large people don’t disagree with the way it is.
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