‘There is Renewal of Confidence in Markets’
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.