The next 45 days are critical in how the economy is opened up and the number of infections, believes B Gopkumar, Managing Director and CEO, Axis Securities.
In an interview with BusinessLine, he said the impact of the lockdown on economic recovery will be evident after one or two quarters as there is some pent-up demand as of now. Edited excerpts:
What is your expectation on economic recovery?
It is an unprecedented situation and I don’t think anyone will be willing to put a number on the GDP growth. We don’t know the after-effects of the lockdown. Initially, there will be some pent-up demand and sales of autos, and consumer durables can show a spike. It can be misleading; we need to wait for one or two quarters to see the impact of the lockdown.
Do you think the stimulus packages will help revive demand?
There is nothing called ‘enough’ in our country as we are a large country. It is the right move and a lot of things have been done but we need to see how much of it is translated into the real economy. Some reforms can take place but markets are not expecting a large package. The next 45 days of opening up and its implications will be important for the next two to three quarters.
Stock markets seem to have discounted events like rating downgrades, and macro data. Your view.
Markets are not taking it very seriously as the whole world is going through the crisis. Also, a huge amount of liquidity has been pumped in across the globe. The capital market is today (operating) purely on liquidity basis. Returns on fixed deposits are low and people are willing to put money in risky assets through direct exposure, mutual funds and ULIPs. A substantial portion of retail customers are active. We have seen 40 per cent to 45 per cent of new customers coming into the market, activations are going up. People are buying good quality stocks and are building portfolios.
There were plans for big-ticket IPOs like that by Life Insurance Corporation of India. What happens to the IPO market now?
The IPO market will take time. There is some level of confidence in the market with the Reliance rights issue getting money, and Uday Kotak’s personal stake getting taken up fast. There is an appetite for good-quality paper. It will take some time, but obviously companies will come and raise money at some time.
Is the banking sector an area of concern?
When economic activity is at a standstill for 60-90 days, the first hit will be on BFSI. Banks have provided for 35 per cent to 40 per cent. We also need to see how many borrowers from the retail and MSME categories have taken the moratorium. I don’t think most retail borrowers have understood it fully. On SME and MSME, I don’t think it will be so bad. Rural portfolios are doing well. If you see the top five banks from a price to earnings (P/E ratio) perspective, prices are already discounted by the market.
What is your expectation of recovery in sectors like hospitality, tourism and retail?
Most sectors are dependent on both State and Central government regulations for opening up There are differences from State to State. These sectors will take some time to come back and even when they come back, they will work at 60 per cent to 70 per cent capacity. So cinemas, retail, tourism and airlines will take some time.