December 6, 2021 4:09:14 am
RASHESH SHAH, chairman of Edelweiss group, says the stock markets are in the midst of a structural growth story and IPO market is witnessing a new era of value creation through evolved technologies. Shah spoke to GEORGE MATHEW on various issues relating to the markets and financial sector. Edited excerpts:
Do you think Indian stock markets were overvalued? Do you expect more correction in the near future?
At any given time, stock markets are priced in for the future rather than the status quo. The current valuation of the Indian market is a reflection of the strong belief in the growth in India over the next decade or so. While there may be areas which are overvalued today, there are also many parts which are undervalued and provide good investment opportunities for long term. We are in the midst of a structural growth story and any near-term corrections should be seen as opportunities for the long term.
What’s your view on the valuations of unicorns entering the IPO market? Are they overvalued considering the fact that most of them are loss making?
Like most other markets, the startup market also goes through up cycles and down cycles. We are currently in what is clearly an upcycle. However, we must look beyond valuations and focus on the real and tangible change that these startups are bringing about to the ecosystem, not just in India but globally. Clearly, many of these business models are re-defining and transforming the way we do business and they must be looked at and evaluated in that context. We are certainly seeing a new era of value creation through evolved technologies and while valuations may become overheated at any point of time, their overall impact in our lives cannot be underscored.
The US Fed is likely to tighten the monetary policy soon to check inflation. Do you think FPIs will pull out more funds from India?
There are two big factors playing out in the market today — one is the tsunami of domestic investment we have seen over the last year or so. Even though FPI investments in the last few months have been subdued, domestic investments have more than made up for this shortfall. This is a trend which will continue going forward as a larger segment of the country gets acquainted with the long-term benefits of having equity exposure in their portfolio. Secondly, the structural growth story playing out in India has been a natural attraction for FPIs, especially with the challenges in other growth economies. Hence, a tightening in the monetary policy might lead to some short-term knee-jerk reaction but the overall trend will continue to be favourable.
Do you expect interest rates to rise in India soon? When do you expect the RBI to normalise the policy?
We are some distance away from the rise in interest rates. As the economy continues to see strong recovery, it would be good to let the animal spirits expand wide before thinking about a rate cut. There are still pockets of industries which are yet to see tangible recovery to pre-covid levels and it would be prudent to consider rate cuts only some way down the line.
Bad loans of NBFCs are expected to rise following the recent changes in NPA norms by the RBI. How is the sector taking the regulatory changes?
While there will be some near-term impact, I think many NBFCs will be proactively working towards adhering to the new guidelines while maintaining asset quality. Hence, the monitoring and follow-ups would become more intense and get initiated well in advance. However, this might create short-lived challenges for the end consumer in the short term. However, as the industry evolves to a new norm, new regulations should become par for the course.
What’s your assessment on the economic recovery? Will the emergence of new Covid variants delay the recovery?
India has been on an unprecedented vaccination spree. It has been a humongous exercise but one executed with relentless and unerring focus. The economic recovery has come on the back of this drive and is well and truly underway. While it is difficult to comment on new variants, initial estimates seem to indicate that the new variants seem to be less harmful, even if they could be more viral. Hopefully, this will lead to faster immunity and coupled with the vaccination drive, prevent any outbreak similar to Wave 2.
Corporate earnings are looking healthy. Do you think the slowdown of profits is behind us?
We saw what would be the bottoming out of corporate profits last year and we are now at the beginning of a decadal growth cycle. We are definitely looking at improving corporate profitability in both short term and long term. For Edelweiss, the profit improvement is not only driven by the return of profitability in credit but also strong growth in our asset management and wealth management businesses. Our mutual fund and alternatives business have seen breakout quarters and both our insurance businesses have done consistently well, being the fastest growing in their respective sectors. Despite the uncertainty due to Covid, we have added around 2 million customers in the last one year itself and currently we serve 5 million customers across our businesses. This is also the beginning of another long-term journey for us, and we are only at the cusp of it.
What’s your plan/strategy going forward as fintech companies are changing the way the financial sector is functioning?
We see the fintech wave evolving two-folds. One, there will be opportunities for partnerships between banks and NBFCs on one side and the fintechs on the other. Many of our businesses are today working closely with these fintech companies to enable these partnerships, be it our retail credit businesses, our insurance businesses or our MF businesses. Secondly, there is also an opportunity for us to learn from these fintech businesses, which is what we are also focused on, as we evolve into tech-abled plays in some businesses like retail credit while being fintech players ourselves in some of our businesses like general insurance.
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