March 29, 2021 3:01:34 am
The budget 2021-22 has brought the focus back on capital expenditure, investments and growth. While the government has laid down its plan, Rakesh Singh, group head, investment banking, capital and commodity markets, HDFC Bank told Sandeep Singh that India Inc, too, has started planning its future investments. He said the Aatmanirbhar Bharat focus has provided clarity on what we need to make, the cost structures and how will these products be locally and globally competitive. On stock market volatility. he said that domestic markets are not highly overvalued and one does not need to be too worried. There are enough opportunities to buy good stocks and own for the long term. Edited excerpts:
While the government has announced big capital expenditure in Budget 2021-22, do you see companies and promoters planning investments?
Yes, the industry has already started planning future investments. There has been a visible shift on how the industry is seeing things now. Industry is having an active dialogue with the government and necessary steps have been taken in mutual interest of the country and the industry. The government has taken proactive measures to facilitate industry through the Aatmanirbhar and PLI initiatives which will help them grow bigger and better in the global context. Regulatory framework has also been eased to make it more aligned with ease of doing business.
These developments are giving businesses a fair degree of confidence to step up action and meet the growth demands in the economy. Further, the government’s commitment to build infrastructure is a very strong affirmation of what it intends to do.
Capacity utilisation across cement, steel and some other key sectors have been on a rise. Do you see investments starting there?
The focus on developing infrastructure and housing is leading to higher demand for steel and cement. Also, the scrappage policy will contribute to this demand. Investments are being led by the government and private investment is following.
The government has also endeavoured to create reasonable safeguards for the industry to address dumping issues. The Emergency Credit Line Guarantee Scheme has been a great achievement. So several things have come into play — PLI scheme, increase in infrastructure and capex spending, easing of govt policies, focus on privatisation, opening up of sectors and emphasis on local manufacturing amongst others.
There are many sectors where India is dependent on China. Amid border issues, there is a focus on developing local sourcing capability. How do you see the industry’s progress on that?
Framing PLI policies clearly conveys government’s commitment to encourage local manufacturing. So, whether it is solar panels, semi-conductor and chemicals — three key industries where we are much dependent— it is time for us to recognise them as strategic ones and move in to manufacture more of these items locally. While some small investments are happening, the multi-billion dollar investments will take time and happen in phases. The PLI scheme has brought the focus on local manufacturing and ‘Make In India’.
Aatmanirbhar is a significant policy shift. When ‘Make in India’ was launched, the government was still laying the ground and conveying its intent to attract investments in India. Now with Aatmanirbhar Bharat, we know what we need to make, the cost structures and how will these products be locally and globally competitive.
Till a year back, there were noises around businessmen moving out of India with their funds and investment. Has the environment changed?
While people were saying that businessmen are moving out of the country, it was not a proper reflection of what was happening. Industry was expecting more alignment of policy with markets. However, in most cases these companies moved out to acquire a similar line of business offshore in their strategic focus segments. With more clarity and policy alignment now, I believe that these companies will redirect their investments in India.
Notwithstanding the above positivity, the fact that we received $40-50 billion of FDI in a year is an equally good reaffirmation of what India offers. In our conversations with offshore companies, we hear that they see India as a great destination.
FPI investments led to rise in markets, but we are witnessing some correction now. How do you see the markets right now and retail participation in it?
Initially, a lot of retail investors did come as markets fell and offered great opportunity. Gradually, people encashed and shifted portfolio. Markets have been trading at high valuations and at least 2-year forward earnings is already priced in.
At the same time, if you see large companies, they are not trading at exorbitant valuations. The price-to-book value of Nifty is around 4. Maybe, markets are around 5 to 10 per cent overvalued but for a country like India, if investors feel that growth will be in Asia and global investor allocations will continue to increase to India, markets may not see a sharp correction that happened during Covid time in Feb -March 2020. I don’t think Indian markets are highly overvalued that one needs to be too worried about. Some of the leading Indian companies are now operating at global scale and hence are bound to attract more attention of global investors. These companies have seen phenomenal growth and margin expansion over the last couple of quarters and if you factor that in, it seems fine. In bull markets when a lot of money chases few opportunities, this bit of exuberance does happen.
Do you think investors can invest at current levels?
There are enough opportunities to buy good stocks and own for longer term. I would say to invest in large companies as they will continue to grow in market share. Cyclicals for now and BFSI, IT and pharma for the longer run offer good investment opportunity. Yes, they may be expensive but good things don’t come cheap, because such companies are constantly learning, becoming more efficient, gaining market share from unorganised sector or nurturing new markets and thus growing in value.
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