‘There is Re­newal of Con­fi­dence in Mar­kets’

The Economic Times - - Markets + Finance -

BJP’s stun­ning win in the elec­tions has changed things around for In­dia and In­dia Inc. Deepak Parekh, chair­man of HDFC, the coun­try’s big­gest hous­ing fi­nance firm says the coun­try is likely to get re-rated and that fund-rais­ing through IPOs will rise. Edited ex­cerpts from an in­ter­view: The mar­kets have shot up af­ter elec­tion re­sults and many ex­perts pre­dict the Sen­sex can be close to 30,000 by the year end, and the Nifty may top 8,000. Are mar­kets run­ning ahead of the econ­omy or is the eu­pho­ria jus­ti­fied? Pre­dict­ing where the Sen­sex or the Nifty will go by the year-end is best left to stock mar­ket an­a­lysts. Mar­kets had al­ready priced in Modi’s vic­tory, but the overwhelming ma­jor­ity re­sulted in this new­found eu­pho­ria. There is a clear re-rat­ing of the In­dia story, but ex­pec­ta­tions are high for the new govern­ment to deliver. Short-term stock mar­ket sen­ti­ment tends to swing from ex­treme pes­simism to ex­treme op­ti­mism, but over a longer pe­riod, mar­kets are gen­er­ally self-cor­rect­ing. Mar­kets are trad­ing at around 15 times one-year for­ward earn­ings, which is a sign of re­newed con­fi­dence. What I con­sider as a real sign of in­vestor con­fi­dence is the re­vival of ra­tio­nally priced IPOs and FPOs and the re­turn of more re­tail in­vestors to the mar­kets. I think this will hap­pen soon. We need to be pa­tient with the new govern­ment. Re­al­is­ti­cally, there is lit­tle ma­noeu­vra­bil­ity till the budget is pre­sented. The sig­nal from the PM on what he ex­pects from bu­reau­crats, the change in the de­ci­sion-mak­ing process and, of course, the cab­i­net for­ma­tion will be im­por­tant driv­ing fac­tors for the mar­kets. of set­ting up a fac­tory or a small or medium scale en­ter­prise is made sim­pler, it will help gen­er­ate more jobs and boost man­u­fac­tur­ing sec­tor. The PM has a strong tech-en­abled team and a num­ber of young, bright in­di­vid­u­als who had worked on his elec­tion cam­paign. He can eas­ily draw upon some of these re­sources to work with var­i­ous min­istries to roll out a com­plete on-line ap­proval mech­a­nism. This will bring in trans­parency and cred­i­bil­ity to the new govern­ment. Tax ad­min­is­tra­tion is an­other area that needs a over­haul. An as­sur­ance from the PM that the tax en­vi­ron­ment will be less hos­tile will go a long way. And, fi­nally, the mes­sage of zero tol­er­ance for cor­rup­tion from the PM is im­por­tant. What can be done to lower in­ter­est rates and spur con­sump­tion? Should the govern­ment force or nudge RBI into low­er­ing rates? The RBI has rightly ar­tic­u­lated its views that un­less in­fla­tion is un­der con­trol, there can­not be lower in­ter­est rate en­vi­ron­ment. The au­ton­omy of the cen­tral bank must be re­spected by any govern­ment. How do you think in­vest­ment can be re­vived? Will the govern­ment’s pro­posed 100 cities plan work? What about in­ter­link­ing of rivers? The fo­cus has to re­main on clear­ing the ex­ist­ing back­log of projects and this has al­ready been hap­pen­ing, but the pace needs to in­crease. This will pave the way for a pipe­line of fresh in­vest­ments. Fund­ing in­fra­struc­ture is go­ing to be much more chal­leng­ing. Banks are wary of lend­ing for in­fra­struc­ture and al­ter­na­tive long-term fund­ing sources are not forth­com­ing. Who is go­ing to fund in­fra­struc­ture? The en­tire fund­ing of the in­fra­struc­ture agenda is at a crit­i­cal tip­ping point. Ex­empt­ing banks from CRR, SLR and pri­or­ity sec­tor obli­ga­tions with re­gards to in­fra­struc­ture fund­ing must be im­ple­mented the right away. The BJP has an ac­tion plan to bring down in­fla­tion such as a price sta­bil­i­sa­tion fund, ac­tion against hoard­ers, use of tech­nol­ogy to dis­sem­i­nate in­for­ma­tion on crop and weather pat­terns on a real-time ba­sis. Will this will work? What are your sug­ges­tions for tack­ling in­fla­tion? Fis­cal con­sol­i­da­tion, in­creas­ing sav­ings and in­vest­ments and ad­dress­ing sup­ply-side bot­tle­necks are needed, and while this won’t hap­pen overnight, they re­main im­per­a­tives for a sus­tained re­vival of the econ­omy.

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