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‘Room for further cut in interest rates and limited, but well thought out, monetisation of the deficit’

C J George, founder and MD of Geojit Financial Services, told The Indian Express that markets have faith that COVID-19 will pass and then liquidity will push stock prices up.

Written by Sandeep Singh | Published: July 4, 2020 12:26:45 am
C J George, founder and MD, Geojit Financial Services C J George, founder and MD, Geojit Financial Services

Even as a COVID-19 vaccine is still some time away, the stock markets have been on a rise and the Sensex has risen by nearly 40 per cent from its March lows.

C J George, founder and MD of Geojit Financial Services, told The Indian Express that markets have faith that COVID-19 will pass and then liquidity will push stock prices up. Stating that there are signs of green shoots in the economy, he said segments like automobiles, cement, construction can revive quickly assisted by low interest rates. Edited excerpts:

Why do you think the markets are rising despite the concerns around Covid prevailing and hurting the economy?

Markets are rising primarily due to the fact that there is ample liquidity and people are also saving more during pandemic, a part of which is pumped into the market. The other reason being the increasing feeling that the fatality rate of COVID-19 is low and once this short-term suffering is over, the economy has to bounce back. At that time, investors may not get the opportunity to buy in to the market at current levels. Market is reacting to COVID-19 as if it is now a known devil and once it runs its course, the market expects the economy to recover fast.

What is your reading of the economy. What do you think is required to be done for a faster and sustained recovery?

There are signs of green shoots in the economy. The rural sector is doing well, assisted by strong growth in agriculture and increased allocations for MNREGA. Some segments like travel, tourism and hospitality will continue to be constrained for some more time. But others like automobiles, cement, construction can revive quickly, assisted by low interest rates. The best stimulus for economic recovery is unlocking the economy and this is happening in stages. There is room for further cut in interest rates and limited, but well thought out, monetisation of the deficit.

While financial services sector is a big employer, what are the kinds of stress it is facing currently and do you see any signs of uptick?

The sector was facing the fallout of economic growth stress and the resultant NPA pressure for a while now, which got aggravated due to the pandemic. Risk aversion was visible in the sector at all levels. There is a natural demand slowdown due to the pandemic and the sector is still under serious stress. Non-lending institutions are also facing issues although there are no liquidity-related surprises, thanks to the timely help from regulators and the government. Because of all these, there is no signal of any uptick in employment in this sector.

How do you see an overall revival and do you think it will take longer?

What we are seeing is some kind of major consolidation happening, which is good and bad. For investors, it is an opportunity to see big becoming bigger by taking market share from small players. If we look at the world, technology, pharmaceutical and manufacturing firms with e-commerce strength are adding market cap.

As disposable incomes have dropped, what trends do you see on savings front?

What is seen all over the world is low propensity to spend, which is not unusual at a time when the society is in the grip of panic. Hence, there is significant growth in household savings except, of course, the stressed segment of the society who lost their jobs. Individual and corporate high spenders are saving for tomorrow as there is uncertainty. We are seeing gold price going up as its safe haven attraction is very high now.

What is pulling investors into the market in these times?

Stock market has been going up after the initial shock more because of fresh liquidity and increase in savings. There is a lesson from Spanish flu pandemic, which proved life will go on and this event-related stress is a short-term risk. The huge liquidity that is injected is expected to push demand for stock investment.

What is your biggest worry and hope for the economy?

The biggest worry is a second wave of the virus attack. Tensions in the border are an area of concern. Otherwise, the second half of the financial year is likely to witness recovery in economic growth, followed by a sharp rebound in FY22.

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