Consumption to drive growth revival in next couple of quarters: Sunil Subramaniam, Sundaram Mutual
ET Now|
Updated: Sep 22, 2017, 04.31 PM IST
Talking to ET Now, Sunil Subramaniam, CEO, Sundaram Mutual, says the government is now thinking that while the private sector is getting its act in order, it should maybe do a little bit more and that can only happen through a stimulus, through borrowing.
Edited excerpts:
Last time we were interacting, you clearly categorised that the disappointing macro numbers are one off and we should not pay too much heed to it and economy is on track of growth. We now see the government talking about fiscal stimulus to boost the economy. How are you reading this development?
We think it is a necessary step because ultimately in India the government is forced to single-handedly shoulder the burden of kick starting and pump priming the economy because the private sector is not investing in fresh capex as current capacity utilisation is still hovering around the low 70% levels.
So at this point in time, for short term, given the impact of demonetisation followed by GST, naturally there is an impact in terms of private sector going to readjust their stocks, figuring out the new tax laws and how to position their manufacturing.
I think there is just a little bit of confusion which is leading to the people waiting on the sidelines. The government is now thinking that while the private sector is getting its act in order, it should maybe do a little bit more and that can only happen through a stimulus, through borrowing.
Like I said, from our perspective, the underlying growth drivers in the economy are fairly strong; consumption numbers are looking good; interest rates are falling; inflation is falling and so we believe that consumption will continue to drive revival of economic growth and in the next couple of quarters. we expect even corporate earnings to come back to double digit levels.
If you feel that the stimulus is necessary, then in what form should one expect this stimulus to come? It would not be like what US does in the form of QE. It would be different. How would it be and which sectors would be impacted positively by this stimulus?
The difference between the Fed stimulus and the one here is that the Fed was a monetary and a liquidity stimulus, the one here is a fiscal that is a government spending stimulus. The key difference is that the government spending will naturally go into infrastructure. When you do infrastructure, then it is the small and mid-cap companies which are EPC contractors, that will execute the various tenders.
It will be benefit the cement sector, the steel sector. These are the sectors where year-on-year there is already a 40% jump in road construction activity, the railways has a huge plan of capex expenditure about Rs 1,30,000 crore. The government spend will be around these three areas which is roads, railways and agriculture irrigation and rural transformation.
The companies which are basically going to spin off from that which is EPC contractors, construction those who are going to execute these projects, the heavy commercial vehicles segment which will supply the earthmovers, the land tillers and that kind of equipment. These will see a spin off across a wide range of capital goods appliances.
I understand that you guys are not very upbeat on telecom space. But how are you seeing this development in terms of IUC and its impact on some of the companies? What is your opinion? Is this good for the sector from a long-term perspective?
Yes, it is good from a long-term perspective because what happens is that among the various players, there is stiff competition and there be will one or two winners. Ultimately, the consumer stands to benefit today and tomorrow from the fact of this consolidation in the industry. When the consumer benefits, ultimately the winner takes all kind of stakes. When that clarity comes in, at that stage telecom will actually become a very good investment because telecom’s penetration and the scope for growth is phenomenal but there is bloodbath right now on the streets. IUC has added to the confusion.
This is not the right time to invest in the sector but from a longer term view, there will come an inflection point when the winner will become clear and that will be the right time to go and invest in the sector because otherwise from an Indian economy perspective, telecom has a huge growth potential.
Edited excerpts:
Last time we were interacting, you clearly categorised that the disappointing macro numbers are one off and we should not pay too much heed to it and economy is on track of growth. We now see the government talking about fiscal stimulus to boost the economy. How are you reading this development?
We think it is a necessary step because ultimately in India the government is forced to single-handedly shoulder the burden of kick starting and pump priming the economy because the private sector is not investing in fresh capex as current capacity utilisation is still hovering around the low 70% levels.
So at this point in time, for short term, given the impact of demonetisation followed by GST, naturally there is an impact in terms of private sector going to readjust their stocks, figuring out the new tax laws and how to position their manufacturing.
I think there is just a little bit of confusion which is leading to the people waiting on the sidelines. The government is now thinking that while the private sector is getting its act in order, it should maybe do a little bit more and that can only happen through a stimulus, through borrowing.
Like I said, from our perspective, the underlying growth drivers in the economy are fairly strong; consumption numbers are looking good; interest rates are falling; inflation is falling and so we believe that consumption will continue to drive revival of economic growth and in the next couple of quarters. we expect even corporate earnings to come back to double digit levels.
If you feel that the stimulus is necessary, then in what form should one expect this stimulus to come? It would not be like what US does in the form of QE. It would be different. How would it be and which sectors would be impacted positively by this stimulus?
The difference between the Fed stimulus and the one here is that the Fed was a monetary and a liquidity stimulus, the one here is a fiscal that is a government spending stimulus. The key difference is that the government spending will naturally go into infrastructure. When you do infrastructure, then it is the small and mid-cap companies which are EPC contractors, that will execute the various tenders.
It will be benefit the cement sector, the steel sector. These are the sectors where year-on-year there is already a 40% jump in road construction activity, the railways has a huge plan of capex expenditure about Rs 1,30,000 crore. The government spend will be around these three areas which is roads, railways and agriculture irrigation and rural transformation.
The companies which are basically going to spin off from that which is EPC contractors, construction those who are going to execute these projects, the heavy commercial vehicles segment which will supply the earthmovers, the land tillers and that kind of equipment. These will see a spin off across a wide range of capital goods appliances.
I understand that you guys are not very upbeat on telecom space. But how are you seeing this development in terms of IUC and its impact on some of the companies? What is your opinion? Is this good for the sector from a long-term perspective?
Yes, it is good from a long-term perspective because what happens is that among the various players, there is stiff competition and there be will one or two winners. Ultimately, the consumer stands to benefit today and tomorrow from the fact of this consolidation in the industry. When the consumer benefits, ultimately the winner takes all kind of stakes. When that clarity comes in, at that stage telecom will actually become a very good investment because telecom’s penetration and the scope for growth is phenomenal but there is bloodbath right now on the streets. IUC has added to the confusion.
This is not the right time to invest in the sector but from a longer term view, there will come an inflection point when the winner will become clear and that will be the right time to go and invest in the sector because otherwise from an Indian economy perspective, telecom has a huge growth potential.
