Vinay Agrawal, first CEO of Angel Broking, who has been developing successful business strategies and strong analytical skills for the broking house, explains why the market is not satisfied with the ₹20-lakh-crore package from the Union Government. In an e-mail interview with BusinessLine, he discusses various issues impacting market direction. Excerpts:
With the government announcing a ₹20-lakh-crore package, where do you see the markets going? Is it sufficient to stimulate market sentiment?
Markets have had a mixed reaction to the government’s stimulus package, with lack of actual spending by the government not being appreciated well by the markets. The stimulus package focusses more on credit than on actual spend. While the ₹20-lakh-crore stimulus package may seem large at 10 per cent of GDP, it is still smaller in size as compared with the stimulus packages announced by countries like the US.
The US has so far announced a fiscal package of $2.7 trillion (13 per cent of GDP) which includes cash transfers. Cash transfers have an immediate effect on driving demand, which is the need of the hour for any economy. Lending money can lead to a revival, but given the uncertain and tough times that is currently under way, banks and NBFCs are wary of lending and have so far been risk averse, parking on an average about ₹8 lakh crore with the RBI daily. Nothing seems to be sufficient under the present scenario, but what all can be done, must be done.
So, the markets are disappointed with the stimulus package...
The markets were expecting some specific packages for the most stressed sectors but that has so far come a cropper. But given the government’s dwindling tax collections and relatively little room for enhancing the fiscal deficit as that could impact the sovereign rating, the options would always be limited. But nonetheless, opening up the defence sector, focussing on ‘Make in India’, structural reforms in the agriculture and power sectors, and collateral-free guaranteed loan worth ₹3 lakh crore for MSMEs are steps in the right direction.
The pressing need is kick-starting the economy, as the lockdown is now being lifted in phases. But how it plays out in the coming weeks and months is going to be crucial. Further, steps to ensure that credit flow happens through the banking as well as the NBFC channels are equally important, and steps taken in this direction will be more than welcome. Tough times calls for tough measures, and the markets definitely have high hopes from the government.
Rating agencies, experts and even the RBI now predict zero or negative GDP growth for India. As a market expert, do you fear the worst is ahead?
There is no doubt that the world economy is going in for a contraction this financial year, with key economies such as the US, Germany and France entering into recession. China is back on track, with April witnessing automobile sales in excess of two million, the highest level since June 2018. As far as India is concerned, a latest report by United Nations pegs India’s growth in FY21 at 1.2 per cent, which would still be far better than majority of the countries.
But, at the same time, other economic agencies have forecast negative growth as well. Further, India’s fiscal deficit is likely to rise this year, towards 5 per cent plus as suggested by various forecasters. So, the economic data ahead is bound to be negative, but given their intelligence of the markets, investors will be sector and stock specific, focussing on those sectors such as telecom, IT, pharma, and FMCG, which are likely to be better placed to weather the current storm.
Looking through the crystal ball, one can tell that the times ahead is not going to be easy, and investors will have to learn to live with volatility. If we see a containment of Covid-19 both domestically and globally, then yes, we could see a halt in the market correction, but it is still early days to proclaim the same.
Crude shock had impacted Angel Broking. What is its real impact and has the problem been sorted out? Are equity investors of Angel Broking being protected from the problem of your commodity vertical?
It was for the first time in history that NYMEX WTI prices turned negative, this downfall in price was unprecedented. In India, due to Covid-19, business hours for commodity markets was reduced to 1700 hours. Unfortunately, clients with open positions did not get a chance to square off their positions. In this event our exposure was restricted to only ₹13.5 crore, which is a minuscule amount considering our revenue and balance sheet size. While Angel had already provided for this amount, we are currently seeing collection from the clients. This carries no risk to any of Angel’s clients.
The timings have been revised now to 2330 hours again. We have a very robust and completely automated-risk management system in place which triggers off to insulate our clients from any risk. Moreover, we always advise our clients to trade using strict stop losses at all times.
Any important factors that investors should watch out for in the coming days?
Investors are advised to keep vigil as different sets of economic data from the US, China, Euro zone have the potential to impact global as well as domestic markets. So, the markets are set to remain volatile, but yes, with a significant decline in uncertainty and fear as compared to in March and April.
Investing in tranches, focussing only on quality stocks, and keeping a long-term perspective are the need of the hour. Lastly, markets are currently being driven mainly by two factors — liquidity and hopes of an early cure to Covid-19. So, grasping the fact that the only certainty going forward, at least for the next couple of quarters, is enhanced volatility, one will have to learn to live with it.