‘Global markets ignoring current, potential negatives’
Global markets are looking at post-covid growth and ignoring all current and potential negatives, says DHIRAJ RELLI, MD and CEO of HDFC Securities. He tells Ashley Coutinho in an interview that a weak dollar could help improve India’s trade and current account situation and FPI flows. Edited excerpts:
The crash in March was followed by a rebound after April. Are you surprised by the extent and swiftness of the bounce-back?
Though we had expected markets to recover from the initial panic, the speed of rebound has surprised us. The easy money policies by central banks and fiscal stimulus measures adopted by governments have, to an extent, offset the negatives of Covid-19. Markets across the globe are looking at postcovid growth resumption and discounting that scenario. In the process, current and potential negatives are being ignored. If the vaccine discovery is delayed beyond October or if the pandemic resurges, we could see a decent correction.
What are your views on the latest GDP numbers?
The June quarter GDP number came in worse than most estimates. Widespread, repeated lockdowns led to the sharp fall. The RBI has a limited arsenal to drive growth, with the onus now on the government to spur consumption by way of fiscal measures. Lack of demand on account of the fall in employment, along with the tendency to save more, could be of greater concern for FY21. A mix of monetary and fiscal measures to prop up the
economy has fallen short.
Earnings growth visibility is still poor, and investors seem to base their decisions on FY22 and FY23 estimates. What are your estimates for corporate earnings growth for FY21 and FY22?
While there were concerns on FY21 earnings following the Covid-19 onset, the June quarter earnings surprised positively on some fronts. Margins beat estimates across multiple sectors such as IT, cement, pharma, and staples on account of aggressive cost-cutting initiatives and improved pricing power. Lower competition, the unlocking (which led to a sharp demand rebound in multiple sectors), and continued market share gains for larger firms versus smaller players were factors.
Nifty consensus estimates of ~402 for FY21, versus ~408 for FY20, could be met or exceeded marginally. For FY22, consensus estimates suggest a sharp uptick to ~575 on a low base. However, we hope analysts may not be required to keep revising FY22 estimates downwards. The shape of recovery may be U or W, though it may be early to anticipate the same now.
Retail volumes in India have surged. What do you make of this trend?
Retail participation has risen following the lockdown. Employees working from home have time to track stocks and have dabbled in stocks and F&O to make fast money, when the cost of trading has fallen over time. Oversold markets helped them make money.
Retailers this time are not the last to enter the party. However, they will have to be prudent and control their emotions of greed so that they are not left holding the baby when the music stops.
What about the US dollar, which has been weakening?
The US dollar has weakened due to the ultra-low rates in the US. A weak dollar is good for India as its trade and current account situation could improve, FPI flows could improve in equity and debt markets, inflation could reduce due to low cost of imported commodities, and interest costs for Indian businesses could come down. However, these theoretical benefits may not be achieved in entirety due to inter-linkage and change in correlation of parameters.