Confident that foreign money will keep coming into India: Vikas Dawra of YES Securities

FPI and FDI flows will continue to increase. India is getting better on aspects of transparency, rule of law, regulations, governance, business ethics, etc. Large listed companies that have consistently displayed these aspects are pulling away, Vikas Dawra, Joint MD & CEO at YES Securities said in an interview to Moneycontrol's Sunil Shankar Matkar.

Edited excerpts:

Q: Do you think India can report better economic growth in FY22 given the measures taken by the government and current economic data points?

As the economy gradually returns to the new normal, we will surely see improvement in economic data points. However the damage to the economy is real and it will take time to reverse the dips in productions, stem job losses and enhance capital availability to businesses. Pre-existing structural challenges have been exacerbated by the pandemic and there is no quick remedy. The economic impact has been very broad-based and the adverse impact on the most vulnerable will need Government focus.

The extent of improvement and the speed of the same will of course be determined by factors like control of COVID-19 infection rate, gradual return of business confidence, stability in money markets, return of consumption and overall stable situation at India’s borders. All these factors are long term and will require careful handling.

Government has taken significant fiscal measures to support households/MSME. Notably the Rs 3 lakh crore MSME credit guarantee scheme announced by the government is an important step to provide much needed liquidity to this sector. However, government has likely kept some more actions in reserve and will roll out the same to provide further impetus for maximum outcome. We will have to wait for the earning announcements to see the extent of damage and how problematic the road to recovery is going to be. I am not very optimistic of a quick return to growth. However at the same time, Indian economy has shown tremendous resilience to adversity and this too shall pass. Overall India growth story is not only intact but is likely to grow stronger.

Q: Do you think US elections is a major risk for India? Also can you point out other risks (global and domestic) for India's growth story?

In the long term India-US relationships are not dependent anymore on electoral outcome in either country. It is safe to predict a continued strong political support from US for India. As Indian economy emerges stronger, we can expect larger US business presence as well.

As of now US business presence in India is miniscule compared to potential. The biggest risk world economy faces is political disruptions in well-known flashpoints in middle-east and South China sea. Any miscalculations will lead to rapid and severe disruptions. Also let us not rule out any fresh health scares. Vaccination of world population against COVID-19 will be long drawn out and till it is complete we may face frequent disruptions.

One significant yet understated risk for Indian economy is technological obsolescence. We are simply not spending enough towards basic innovation and research. Disruptive business models driven by mega corporates with trillion dollar market capitalizations in an open economy are a real threat to local businesses. Jio has shown that a domestic firm can partner to grow and provide an alternative. But we will need many such companies across the economy.

Q: What is your take on banking sector especially after the end of moratorium period and expected NPA issues?

Past investment in technology and digital transformation allowed banks to function nearly normally despite severe challenges. Without doubt, financial sector will always take the first and most severe impact of any GDP contraction and economic challenge. Rapid fall in market valuations constrained fresh fund raise by most Banks. Combined with unresolved past high gross NPAs, Indian banking has been facing severe challenges worsened by the pandemic. Continued poor economic factors and lack of business confidence will impact earnings.

However on the flip side, many Banks have shown a lot of maturity by proactively raising capital. In the last few months Indian banks have raised/approved raised nearly Rs 70,000 crore and the capital buffer of private sector banks is at a 15 year high. The last few months have given an opportunity to banks to assess the likely damage to balance sheets and prepare accordingly. The consolidation of PSB will play out in 1-2 years as they re-align and resume growth. Overall, I believe that Banking sector will see resilient, digital ready, well capitalized banks pull away from the pack and become even bigger.

Q: Do you think India is going to be a major manufacturing and services hub in coming 10 years and why? What are those prominent sectors which will get benefitted by this theme?

With global concerns around concentration of supply chain risks to a few countries, India has emerged as a strong preferred destination for manufacturing.

However, we are yet to resolve basic issues around manufacturing. Simple passage of time by itself will not take us where we want to go, else we would have already become a major manufacturing hub. For instance, improvement in infrastructure will help but we still have not undertaken painful land and labour reforms. India's policy framework always seems to be work-in-progress to outsiders and they resent the frequent changes.

Concessions in tax have to be practical and workable. In short, as soon as we provide the right environment, manufacturing sector will grow. There are ample opportunities and without exaggeration the world is likely waiting for us to get our act together. Besides the usual sectors like pharmaceuticals, chemicals, auto etc. there is significant scope for becoming a world powerhouse in food processing and export which we seem to be missing entirely. Growth of local manufacturing/assembly in IT hardware is also promising.

Q: Do you expect more FPIs/FDIs to come into India in coming months given the opportunities opened by the government through several measures and initiatives?

FPI and FDI flow will continue to increase. India as an economy keeps getting better on aspects of transparency, rule of law, regulations, governance, business ethics, etc. Large listed companies who have consistently displayed these aspects are pulling away and will keep consolidating.

India-born startups/unicorns are attracting big money. We as a country need to channel this inflow of funds into areas where domestic funds are hard to avail such as high risk innovation, R&D etc. While the flow and ebb of overseas money may vary, there is no real doubt anymore that the overall quantum will grow every year to take advantage of a strong growing economic opportunity in India.