We do expect uniformly good service in the next 12 months, says SBI chairman Arundhati Bhattacharya
Mayur Shetty, TNN | Sep 13, 2014, 02.59AM IST

MUMBAI: As the country’s largest lender State Bank of India is a bellwether of the economy. The bank’s chairman Arundhati Bhattachrya sees signs of recovery as auto loans have jumped and businesses are in consolidation mode, reducing debt by selling assets in many sectors including roads and power. Bhattacharya who has been included in the 50 most influential list by Bloomberg wants to leave the bank a more nimble and efficient institution. In an interview with TOI she explains how she will achieve this.

How do you plan to make SBI more nimble and efficient? Do you envisage restructuring of creation of verticals?

We already have verticalisation — for large companies, mid-corporates and for smaller borrowers. What would make us nimble is sector specialists within the verticals. Right now we have sector specialists only in CAG. We also need more segmentation 1 for ultra-high networths, the high networths and the mass affluent. We definitely need to look at which branch caters to which category. For the youth we have already created the ‘In touch’ sub-brand and have created seven digital branches. Organisationally I am not doing a restructuring as what is needed is more collaboration. We need more technology so that there are dashboards where our people can see the progress at a glance.

SBI loans are the cheapest and the bank has the widest reach. Yet borrowers go to your rivals because they are faster.

Yes we have issues on delivery of home loans and other loans. Mckinsey is consulting us on this and we have started a pilot project on two of our branches. Our service delivery right now is patchy as it is person dependent and not system dependent. We want to make it person plus system dependent. We do expect uniformly good service in the next 12 months. Also in private sector there is this fear of loss of jobs. What we are thinking of is an ESOP which will give employees a sense of ownership. I want employees to own whatever they are doing and to the best extent possible. We have got a kind of an in-principle clearance. We now have to frame the plan and go to the board, the government and RBI.

What is the risk that some large exposures like Bhushan Steel turn into NPAs? Why is it such a challenge to declare a defaulter as a willful one?

We definitely would not like it to slip. We are monitoring it on a regular basis but the result of the forensic audit will take time. Wilful defaulter is a challenge as you have to prove in a court of law that a company has diverted funds, that it had the money and didn’t pay. Presently the company has to be first proved a wilful defaulter only then can you proceed against the guarantors. It is only now that RBI has said that you can proceed simultaneously. But this is applicable only on guarantees that are given from now on because the guarantors must know the changed circumstances. We have declared a number of wilful defaulters and we have been using it quite regularly.

RBI’s bi-monthly policy is around the corner. Have you made any representations?

We have asked RBI for a repo window on Saturday. Also currently we have to maintain cash reserve requirements at 95% it would be a easier for us if it was 85%. RBI has already set a target of bringing down statutory liquidity ratio (mandatory investment in government bonds) further. At this point of time reducing SLR is not going to add to anything as all banks are holding government bonds in excess of requirements because credit growth is slow. I expect a status quo, but RBI has surprised us in the past.

Source : http://goo.gl/jrkBvX

Tuesday, 27 May 2014 – 7:10am IST | Place: Mumbai | Agency: DNA
As told to : Anto T Joseph

Niranjan Hiranandani, a real estate tycoon who co-founded Hiranandani Group, sees better days coming for the real estate sector, which has been in doldrums for the last few years. In dna’s ongoing series of interviews on India Inc’s expectations from the new government, he spoke to Anto T Joseph about the measures he thinks the new PM should take to revive the economy and the sector. Excerpts:

Is the high interest regime a major obstacle for the housing industry?
Under the previous NDA rule, interest rates were ruling pretty high in the initial phase. Subsequently, rates came down. Home loan rates came down from 16-17% earlier to 9.5%. This helped the sector tremendously. During those days, the limit of priority sector homes was Rs 5 lakh for consideration under priority sector lending schemes. It was subsequently hiked to Rs 25 lakh for metro cities and Rs 15 lakh for other cities. You know that homes can not be bought at these price bands in cities. It needs to be hiked further to a respectable Rs 50 lakh in cities like Mumbai, and Rs 25 lakh for other cities.

There has been a lot of talk about the need to hike income-tax benefit on home loan interest payments. Do you think a higher figure will help the sector?
As of now, tax benefit on home loan interest payments is fixed at Rs 1.5 lakh. This means that those who are availing Rs 15 lakh loan can get the entire interest payment covered by I-T benefit. I think the tax benefit against the interest paid on a home loan should be hiked to Rs 5 lakh so that those who buys home on a Rs 50 lakh loan will get the entire interest payment covered in I-T benefit.

The real estate industry is subject to a host of taxes and duties making it more unaffordable. What is your take?
The new government needs to look at rationalising these taxes. For any house, the effective tax component is around 31%, including stamp duty. If you buy a home with occupation certificate (OC), there is no need to pay service tax. But a home under construction invites 4.5% (effective) service tax. This needs to go away.

How do you increase the supply of affordable housing in the country?
Today, it takes around 3-4 years to get all clearances for any new project, and 18 months is an absolute minimum for any builder. This has also led to delay in project execution and a lot of bribery in the system. It’s high time that the government introduced single-window clearance, to expedite project clearances, including environment and height clearances, and avoid multiple departments to be approached.

Do you think the Hyderabad example of freeing up FSI will help the sector?
Yes, of course. The government should increase FSI (floor-space index) universally, rather than hiking it selectively. Hyderabad has shown us an excellent example. The Hyderabad government monitors three important factors – road width, fire fighting facilities and car parking. Clearly, this has helped Hyderabad promote affordable housing.

How will the introduction of REITs help your sector?
The market regulator Sebi has already finalised the rules and regulations for Real Estate Investment Trusts (REITs). The government needs to take it up and get it passed. This will provide additional funding to the housing sector. Provident funds and pension funds will be interested in investing in Indian REITs.

What are the other measures that you strongly recommend?
If you let out your house, the rent is added to your income and taxed at the normal rate applicable to you. However, there is a 30% standard deduction from this income, as per the I-T Act. The government should incentivise creation of rental housing stock, by providing higher standard deduction of 50%, instead of 30%. Another important issue is the long-standing demand of ‘infrastructure status’ for affordable housing and townships. All these policy changes are important to make the NDA promises (25 million urban houses and 45 million rural houses by 2022, the 75th year of India’s Independence) a reality.

Which are the other important projects the government should attend to immediately?
Several road projects worth around Rs 15,000 crore are pending now. The government can push all these projects as quickly as 30 days. That could provide a good start to the new government. I would suggest that the government should pick up five major infrastructure projects in Mumbai. Trans Harbour Link (between Nhava and Sewri), Metro Rail second phase, Navi Mumbai airport, West Island Freeway (coastal highway) and Goregaon-Mulund Link Road. The new government has already promised bullet trains in the country.

Will the Real Estate (Regulation & Development) Bill help the sector?
The bill seeks to bring about more regulations that are not likely to provide more housing. However, I agree that it provides more transparency of the projects to the house buyer. The government should actually draft a housing promotional and regulation Bill. This will monitor government agencies which delay permissions. This may be more useful than a simple regulator, which does not have the teeth to control government agencies.

Source : http://goo.gl/srwrza

May 16, 2014, 09.54 PM IST | Source: CNBC-TV18
According to Sunil Singhania, since Indian got a single majority party after 30 years, investors are expecting a lot of surprises going ahead.
SUNIL SINGHANIA Head – Equity, Reliance Mutual Fund

After Narendra Modi-led BJP exhilarated India with a clear majority of nearly 280 seats, Sunil Singhania, Head of Equities, Reliance Mutual Fund believes the country is heading to better times.

According to him, since India got a single majority party after 30 years, investors are expecting a lot of surprises going ahead.

A near-term move of 10 percent either up or down is likely to continue for another day or two, he adds.

Below are excerpts from the interview:

Q: We have seen quiet a bit of volatility, but this is the best market wanted, what is the way forward now? Do you expect some profit booking at these levels or do you expect fresh set of investors to come in now and the market may go to higher levels?

A: There are very few investors who would be sitting on profits because they have been ignoring the market for long. Having said that, near-term moves of 10 percent upside and correction will continue for another day or two. Look at medium-term, short-term as well as long-term with a lot of optimism.

There were so many things which were stuck for a variety of reasons for the last couple of years and we were discussing that this is the best mandate in our life, its in the professional life, we have never had at least as an investor, a scenario where a single party had majority, so we are looking at this with a very different view, things can surprise or keep on surprising more and more as we move forward. So, irrespective of what happens today or tomorrow, our view is that we are heading for better time.

Q: You are a fund manager and so you would advice retail to enter via mutual funds but in terms of portfolio rotation or portfolio allocation if someone has to invest on his own, what would be the best advised?

A: First get convinced about equity. If you are invested in equity at least you will make equity returns, sector preference might increase or decrease returns by 1-2 percent but ultimately the asset class selection has to be right.

As an investor or as India, we are only 1-2 percent invested in equity, I think asset allocation has to be right, so my immediate advice to investors would be to get the asset allocation right and then invest in equity. The next question would be then in which sector or which stock do you invest. So, first the asset allocation itself has to be right.

Source : http://goo.gl/QOR7qF

ET Now Mar 21, 2014, 05.45PM IST | Economic Times

In an interview with ET Now, Paresh Sukthankar, Deputy Managing Director, HDFC Bank, shares his business outlook and his expectations from the upcoming RBI policy. Excerpts:

ET Now: Give us your sense of how you read the evolving macro dynamics and from the bank’s point of view, are you seeing any pick up in corporate credit demand?

Paresh Sukthankar: The markets have been getting more positive and euphoric, but on the ground, I would say that people are a little more cautious. Things have stopped getting worse and in a sense, they have plateaued or have bottomed out.

But it is fair to expect that a pick up should happen only as the investment cycle improves and that will happen not just immediately post elections, but maybe during the 6 to 12 months thereafter.

ET Now: A number of external risks also seem to have resurfaced, especially on the geopolitical front. The Fed has moved on expected lines, but global uncertainty remains. Do you see a significant impact of global headwinds on the Indian economy?

Paresh Sukthankar: Not, really. There may be some impact on the markets, in terms of flows, but if you look at the real economy or even the banking system itself, they are going to be driven much more by what happens domestically.

A good monsoon, a slightly better agricultural output and the fact that the consumption engine will start to largely hold up may cause the economy to look up this year. There is usually some consumption spurt linked to even election-related expenditure. Most of that has pretty much panned out. However, it will take some more time for the investment cycle to pick up.

ET Now: So what is the credit growth for HDFC Bank for the fourth quarter looking like? Will it be retail or corporate credit that will drive your growth this quarter?

Paresh Sukthankar: Generally speaking, if I look at the demand between retail and wholesale in the last few quarters, that should not have really changed now either. It has been more or less on an even key.

We have had a couple of quarters where the retail side marginally outpaced the wholesale lending, but in the December quarter, we had actually had the wholesale loan growth slightly outpace retail. So both are chugging along reasonably well, but this is not specific to a particular quarter and certainly not this one.

ET Now: Do you believe that the RBI governor may look at giving growth a push by cutting rates on April 1, now that the CPI inflation is closer to its glide path?

Paresh Sukthankar: Well, I do not think a rate cut is on the cards. The rate pause is probably a reasonable expectation. In any case, the RBI has said repeatedly that there is no trade off between inflation management and growth and that in the medium to long term, their focus would be on managing inflation. That is what is required to create an environment which is supportive to growth.

But on the rate front, in the immediate short term, clearly because there has been tightness in the money markets post the tax payments, there has been a slight hardening of rates.

I must say that the typical March phenomenon this year has probably not been as acute as it had been in the previous years. So while you have seen a slight pick-up in interest rates, it has not been as intense as in the past. But generally speaking, at this point of time, it is fair to believe that rates will remain reasonably flat.

ET Now: What is your sense on cost of funds for the bank this quarter? Give us a sense of the levels that one can expect for your NIMs, for this quarter?

Paresh Sukthankar: Well, like I said, the interest rate movement on the deposit side has not been meaningful enough to make an impact on margins. Our margins again in the last few quarters have moved 10 bps in each direction and they have remained in the classical range that we have had, which has been somewhere between 4.1% and 4.3%. I do not see margins moving out of that range at all, right now.

ET Now: So give us a sense of the size of your unsecured retail lending book. Some brokerages have highlighted the asset quality of this book as a key risk. What is your take on this?

Paresh Sukthankar: To be fair, the personal loans business, or the unsecured loan business, used to be about 13% of the retail loan book about a year back. It is about 14% of the retail loan book today. So it really has not changed unless you are looking at decimal points.

On the asset quality front, it has remained extremely stable. We have found that in this entire cycle, even as the economy has slowed down and while there has probably been some increase in delinquency in a couple of secured products, surprisingly the unsecured loan portfolio and the card portfolio have really held up fairly well.

A large part of that portfolio relates to loans or cards issued to our internal customers and both in terms of delinquencies and losses, the portfolio quality has been fairly stable.

ET Now: Are you seeing any signs of stress as far as asset quality is concerned, whether on the retail side or on the corporate side?

Paresh Sukthankar: Not really. Again, it will be fair to say that over the next few months things should stabilise as far as overall asset quality is concerned, before they start to look better.

But right now, I cannot say that there has really been any change. From our point of view, asset quality, on an overall basis, has also held up reasonably well and if you look at it vis-a-vis a year and a year-and-a-half back, our total NPLs have really not moved by more than 10 or 12 bps.

So our portfolio quality both in terms of NPLs and restructured loans has been roughly stable and I am not guiding towards a particular number for this quarter. The environment, like I said earlier, is not getting sharply better, but things have stabilised. So hopefully, that should support the asset quality at some point of time.

ET Now: There is a lot of interest in the market over your application to the FIPB to raise the FII limit. What is the status on that and what happens if the approval does not come through?

Paresh Sukthankar: Well, we have not unfortunately heard anything specific on where it stands. We are still awaiting the approvals. We have made our submissions. I guess from the market’s point of view, till the FIPB approval comes through and the entire approval process is done, there will be no incremental foreign investment that can be made in the shares. I guess it is of interest to the markets. We expect an approval, but we will have to wait for what comes through ultimately from the FIPB.

Source : http://goo.gl/b8kh3y

February 2014 | Fidelity.com.au

Timothy Orchard, the Portfolio Manager of the Fidelity India Fund, and Portfolio Advisor Sandeep Kothari share their views on the state of India and how they have positioned the Fund for 2014.

What is your vivew on the state of the India’s economy?

Tim: For the past two to three years, indecisive policy-making and weak governance led to deterioration in domestic economic fundamentals and a negative knock-on effect on corporate earnings and valuation. However, recent policy measures seem to be working and the country’s macro-economic environment is showing signs of an improvement. The recent initiatives to contain the current-account deficit and rein in currency depreciation seem to be working. The government looks keen to meet its fiscal deficit target. Although inflation remains high, it is likely to ease from here.

Overall, I think that India remains a strong domestic growth story. It has the potential to grow 7% to 8% annually but for that potential to be realised, appropriate policies and effective execution need to be in place. If a reasonable government is elected in the upcoming general elections in May 2014, we could see the economy reverting to its higher growth trajectory in the medium term.

Sandeep: I would agree with Tim that there is much to be optimistic about India. Although cyclical challenges exist, the rate of growth seems to have bottomed out and has the potential to gradually rise from here. Policy bottlenecks led to a large project backlog worth 8.3 trillion rupees (A$1.5 billion) or 7.8% of GDP. Even if some of these projects are cleared, it will lay the foundation for the next phase of growth. At the same time, the annual monsoon has been good and this is helping the rural sector. Increased food production is likely to reduce inflation and boost rural demand.

Sandeep. what are your expectations for the upcoming elections?

Sandeep: I think regardless of which party wins, the process of liberalisation and economic reforms is irreversible. We have seen this during 1996 to 1998 when a coalition, third-front government came into power. If the recently held provincial elections are any indication, voters are concerned about the state of the economy, corruption and governance. Thus, any party that comes to power will be expected to re-start the investment cycle, contain the “twin” deficits and tame inflation. Curbing corruption in public places is another major issue which would have to be a priority.

Tim, how do you work with Sandeep?

Tim: Sandeep is our in-house India expert and plays a crucial role in stock selection for the Fund. He was the Country Head of Equity Investments between 2006 and 2012 based in Mumbai. After we sold our Indian business in 2012, we retained Sandeep and the research team. Now, Sandeep devotes all his time as the Portfolio Advisor for Fidelity’s India funds.

Sandeep has a well-established investment process. Although he is based in Singapore, much of his time is spent in India working with our Mumbai-based research team. He constantly visits companies, meets managements and other stake holders, government officials and regulators to form his investment thesis and pick high-quality companies with scalable business models available at attractive valuations into the portfolio.

I contribute my portfolio-construction and risk-management expertise to the Fund. As Head of Equities for Asia ex-Japan, I have been overseeing regional managers’ portfolio construction and risk management. My focus is to help generate consistent long-term, risk-adjusted returns for our clients.

How have you positioned the Fund given your market outlook?

Sandeep: The Fund is structured to take advantage of the long-term growth prospects of the Indian economy. Since we assumed management responsibility, we have made a few changes. For instance, the exposure to higher-conviction holdings was increased and some of the smaller holdings were offloaded. We increased the stock-specific risk in the Fund while keeping country and currency risks under control. The portfolio is evenly balanced between firms that benefit from overseas demand and those that gain from India’s consumption and economic growth potential.

Domestic consumption remains a secular growth theme and consumer discretionary is our biggest sector-level overweight. We prefer industry leaders or market-share gainers with a strong franchise and a scalable business. Meanwhile, we are underweight the consumer staples largely due to valuation concerns.

Among exporters, Indian generic drug manufacturers and IT services providers continue to see strong demand from overseas markets such as the US. While strong demand and a large number of patent expiries coming up present a favourable environment for Indian drug manufacturers, the IT services sector is benefiting from the recovery in the US and European markets. Ongoing rupee weakness is an additional revenue boost for these firms.

Among cyclical sectors, the banking sector has been adversely affected due to a fall in asset quality, while industrials were hit by a slowdown in capital spending. We have increased exposure to these sectors given attractive valuation and a likely benefit from a recovery in investment cycle. Among banks, we remain focussed on the private sector players in the retail space with well-capitalised balance sheets and low levels of non-performing assets.

Could you talk about some of your major stock ideas?

Sandeep: The largest active position is ICICI Bank, India’s largest private sector bank. It has a strong franchise and is focused on urban retail customers. Its asset quality is better than that of the banks that focus on the corporate sector. As the economy improves, ICICI Bank’s assets should grow at a faster pace than the industry average. The management’s focus on improving productivity and branch efficiency should yield additional benefits.

Dr Reddy’s Laboratories is a large generic drug manufacturer in the portfolio. The firm has a solid product pipeline in both the developed and emerging markets. More importantly, the quality of drug approvals in the US demonstrates the strengths of the company’s research capability. Its quality financials, healthy operating margins, a clean balance sheet and a high return on equity completes our thesis for the stock.

The largest active position in the consumer space is the shoe retailer Bata India. There are three main factors that drive its performance. Firstly, the Indian footwear market, which is largely unorganised, underpenetrated and largely utilitarian, is seeing a shift towards organised retailing and branded products. This benefits Bata, which has a strong brand recall and an extensive retail network. Secondly, Bata operates in the affordable segment with virtually no major threat to its leadership. Lastly, the management is actively seeking higher margins by improving product mix and changing the store format to attract a younger demographic.

The Indian stock market is close to its all-time high. What makes you confident about Indian equities?

Sandeep: While Indian equities are close to their high levels, valuations are still below their long-term average. Meanwhile, recent earnings downgrades mean that there is scope for earnings surprises if the economy improves.

There are two factors that make us confident about India. First, our belief that over the long term, equity-market performance is aligned to economic performance. Most experts would agree that India is one of the most promising long-term domestic growth stories in the world and, despite all its inefficiencies, the country has a strong and stable democratic political system.

Second, the ability to invest in a broad range of Indian companies, in terms of their areas of operation, business size, business quality, corporate governance standards and so on. Investors have the choice to stay with defensive, high-quality businesses during challenging times and invest in the more cyclical parts of the economy when growth is strong. This makes India an attractive destination for stock-pickers throughout an economic cycle.

Important information

Any references to specific securities should not be taken as recommendations and may not represent actual holdings in the portfolio at the time of this viewing.

Investments in small and emerging markets can be more volatile than in more-developed markets.

Investments in overseas markets can be affected by currency exchange and this may affect the value of your investment.

Source : http://goo.gl/bHQc5q

By Morningstar | 14-02-14 | Nick Kirrage

Nick Kirrage, manager of the UK-based Schroder Recovery Fund, shares his views on value investing.

How do you define value investing?

Value investing is the art of buying stuff for less than its intrinsic value. I suppose all fund managers say that they buy stocks that are worth more than they pay for them. That’s the whole point of fund management. But with value investing, we have a more kind of disciplined way of identifying those companies, of finding businesses that trade explicitly low valuations, low P/Es, low cyclically adjusted P/Es, valuation metrics, and we fish in particular ponds of cheap stocks.

Businesses often are cheap for a reason, but is that a good reason? As value investors, we frequently find it’s not. By investing in those businesses, when they’re very out of favour, you can make significant returns for clients.

Does the macro view have a bearing with regards to value investing?

Value investing is a broad church and there are different ends. Warren Buffett started in the mold of his mentor, Benjamin Graham, who was around in the 1930s, 40s and 50s and is considered the father of value investing. His belief is that you focus explicitly on cheap valuations and you don’t concern yourself overly with the macro economy.

The macro economy is very important. Macroeconomics and the business cycle have a big impact on companies. It’s just very, very hard to know how the cycle will unfold and what the direct impact will actually be on the companies, and of course, on their share prices, because the stock market is a discounting mechanism.

We don’t take an explicit macro view, but we always have in the back of our mind that economics is a very cyclical phenomenon. It’s very mean reverting over time. So, where we are investing where the assumptions are the things are good and will remain good, that’s potentially quite dangerous and where we are investing where things are bad and the assumption is it will never improve, that potentially approaches right side of the averages.

The nature of value investing is such that sometimes stocks will be cheap just because they are rubbish.

There is that. People often say things have changed, that’s why the stock is cheap. And sometimes things have changed. But what we frequently find is that more often than not, things have not changed. The expression, it’s different this time, we believe are four of the most dangerous words in investment, because frequently it is not that different.

Companies are dynamic. They evolve. They change. If things have changed in their marketplace, they evolve to try and take advantage the way in which they’ve changed. So, what we find is businesses that are out of favour, frequently come back into favour.

When focusing on out-of-favour stocks, what is the dominant risk?

There are risks to the style of investment. The one we’re more focused on is balance sheet risk, because we don’t know the time period it will take for companies to improve, to see that recovery.

We can’t control volatility. We can’t control whether the stock market will like or dislike these businesses in the short term. But we can make sure that the businesses have better balance sheets, and where they don’t have a stronger balance sheet, we’re very compensated for that with large amount of upside. That’s what our recovery fund does.

This interview has been taken from Morningstar UK and has been edited for an Indian audience.

Source : http://goo.gl/GXG9Zx

Sanket Dhanorkar, ET Bureau Feb 24, 2014, 08.00AM IST

Stressing on long-term wealth creation and optimistic about India Inc’s growth, Sandesh Kirkire, CEO, Kotak AMC, advises investment in equity as it is likely to give the best returns in a few years’ time. Here are excerpts from his interview with ET.

Investors are still shying away from the equity market. Are they likely to miss out on good opportunities?

Investors have to understand that markets tend to give lumpy returns. There may be no returns for 3-5 years and, suddenly, the market will give phenomenal returns in one year. There is no way of telling which that year is, so you need to stay invested in the market. Suppose you invest at the peak of the market every year for 15 years, and then the market crashes. Now if you had stayed invested throughout this period, you would still have got an 11 per cent post-tax return. This means that it is just about the time spent in the market rather than timing the market.

The problem is none of us knows when the market is going to go up. The fund managers have done a good job of producing consistent alpha, but the investor has to understand that we are alpha managers, not absolute return managers. Kotak 50, which completed 15 years recently, has grown almost 15 times in as many years. On the other hand, how many people have remained invested from the start? Hardly a few. They are moving in and out regularly. One has to realise that longevity brings wealth; wealth creation is a long-term process.

What can investors do to take away some of the underlying risk?

It’s a given that the markets will surprise you. The only thing we can control as investors is our asset allocation, and maintaining it is of paramount importance. It is essentially a control over greed and fear. So, if you had decided to allocate 50 per cent to equity in 2005, it would have grown to 80 per cent by 2008. What should have been the approach at that time? We should have sold equity, but we were doing the exact opposite. Greed had taken over. How do you control greed and fear? The only way is through asset allocation. This involves rebalancing every few years. If you see a sharp change, rebalance it. If you follow the basic principles of asset allocation, you will not lose.

When do you expect the investment cycle to turn around?

The market is hoping for a stable government. The efforts of the present government in the past six months to clear stuck projects will lead to jump starting activity and, hence, job creation. Ultimately, the slowdown is because we are not bringing in new consumers to the market, which will happen through new jobs. Jobs will help start the investment cycle. We simply cannot have manufacturing growing at a rate lower than that of agriculture. Kickstarting manufacturing will solve many issues. India has been one of the most wellmanaged emerging markets over the past six months.

We hiked rates at the right time. We have now closed down our current account deficit to a large extent. Exports are doing well. We have acted decisively. What we need now is a stable government to take things forward. Once this happens, earnings growth will improve and the market will start looking at re-rating when earnings growth enters high double digits.

Does the recent interest rate hike threaten to take the economy in another direction?

Interest rate is just one of the factors of production; it’s not the only one. We also need to look at rates from the perspective of savers moving away from financial assets. Despite the economy boasting a 30 per cent savings rate, the financial market savings rate was hardly 8 per cent. This means that the investor found it better to be outside the financial markets and buy hard assets. This is what led to the demand for gold. This has to change and investors should get a real return.

The RBI’s message is clear: if we manage the CPI well, consumption will grow. The RBI has merely realigned the rates to this philosophy. Is this going to hamper growth? A hike will not. Banks are not hiking their lending rates, so the cost of borrowing for companies will not rise. It is just that the central bank is aligning itself to the CPI targeting, which at this juncture is not anti-growth.

Do you still believe India can revert to the earlier growth trajectory?

We are talking about 5-5.5 per cent growth through 2014-15. This year it will be slightly under 5 per cent, a rock-bottom rate for India. I am confident about growth coming back. We need it because it would lead to higher taxation, which will lower fiscal deficit and, in turn, would create better spending and uplift the masses. Hence, it is inevitable that we go back to 6-7 per cent.

I am not sure about achieving this kind of rate at the current level of inflation and interest rates. For the economy to grow, inflation has to fall; you cannot have high inflation, high interest rate and high growth. This combination just cannot work. Once inflation comes off, it will increase the possibility of softening and drive growth. So, there are various other issues involved, not just interest rates.

What mix of mutual funds would be appropriate for investors at this juncture?

Every investor has different needs and, hence, varying investment horizons. Each asset class has a risk attached to it and one mitigates this through a judicious investment horizon. Typically, equities are a riskier asset class than debt, but over the long term, the former have been found to produce a significant alpha over debt or inflation. At this juncture, the economy seems to be bottoming out. While equity has been volatile, the index has remained stagnant over the past few years. The equity return over the past five years has been above 15 per cent, perhaps the best among all asset classes.

I expect the economy to recover over the next few quarters and the market is trading lower than the long-term valuation. So, equity should again outperform other assets in the next few years. All financial surpluses that an investor does not need for the next five years or more could be invested in equity.

Source : http://goo.gl/LrG06A

Oct 14, 2013, 07.16 PM IST | Samiran Chakrabarty, Regional Head of Research

Higher-than-expected CPI and WPI numbers may trigger the Reserve Bank of India (RBI) to hike interest rates in October and December, believes Samiram Chakraborty, head- research, Standard Chartered Bank.

After the disastrous consumer price index (CPI) inflation that stood at 9.84 percent , Samiram Chakraborty, head- research, Standard Chartered Bank says there is a high possibility of the Reserve Bank hiking rates in its monetary policy in October and December.

Speaking to CNBC-TV18, Chakraborty says the CPI numbers came in higher than expected, just like the wholesale price index inflation (WPI).

However, there does seem to be a possible respite in sight. “This is the period when prices should cool off and actually anecdotally even within the month of September, the first half food prices were very high. The second half food prices relatively cooled off. So, if this trend continues in October also then probably we have some good news ahead,” he adds.

Below is the edited transcript of Chakraborty’s interview to CNBC-TV18.

Q: What a disaster of a number 9.84. This looks like one rate hike won’t be enough?

A: For both inflation data today, the numbers have been substantially higher than market expectations and this is clearly posing question marks in front of RBI on the need for inflation management. We will see renewed focus on that going forward. We are expecting two more rate hikes one in October, one in December. We are now comfortable holding on to that call because our view on inflation being somewhat more persistent turns out to be true in this instance. I am also looking for further break-up of the data.

Q: Worst is vegetables that is a 35 percent rise year on year (YoY). May be the broad numbers will make more sense to you. Food and beverages is up 11.4 percent, while clothing, bedding and the non-food items are up 9.3 percent YoY. Is it giving you the impression that non-food CPI is also high?

A: That is what I would tend to think. My rough estimate would be that it is in the range of 8.3-8.5 on the so called core CPI. So, just like the core WPI has inched up in this month it looks to me that even the core CPI has also inched up.

Q: With the data you have what is the sense you are getting about inflation. We are pretty close to double digit inflation. You think that peaking off of inflation is not round the corner? What is the year-end number you are working with for both WPI and CPI now that both core and food inflation are continuing to rise?

A: We had factored in something like a 7 percent on WPI as the peak and something around 10 percent on CPI as the peak and then a gradual coming off from there. What is really difficult to predict today is the food price component. This is the period when prices should cool off and actually anecdotally even within the month of September, the first half food prices were very high. The second half food prices relatively cooled off. So, if this trend continues in October also then probably we have some good news ahead but otherwise this food inflation is turning out to be very sticky. Unfortunately that will have implications for the headline number and for monetary policy as well.

Source : http://goo.gl/XlM3yC