Brace for new profit growth cycle, revenge spending, says HDFC MF’s Navneet Munot

MUMBAI: HDFC Mutual Fund’s newly anointed Managing Director and Chief Executive Officer Navneet Munot says India Inc’s profit growth cycle is just starting to pick up after hitting multi-decade lows last year.

In 2020-21, India Inc’s profit-to-GDP ratio rose to 2.8 per cent despite the Covid pandemic after hitting multi-decade low of 1.6 per cent, brokerage firm said in a report.

“Earnings growth will be driven by a strong tailwind from global reflation and a steady, broadbased growth cycle along with gains from innovation and cost rationalisation, lower real rates and low corporate tax rate. Signs of green shoots are already visible,” Munot said in a note to unitholders.

Munot said the pandemic and government policies have acted as catalysts for the return of the investment cycle, which had been dormant for the past few years. “Corporate and banking sector balance sheets are in a better shape while newer instruments of long-term financing and development models are coming of age,” Munot said.

The former chief investment officer of India’s largest mutual fund by assets, SBI Mutual Fund, said the Indian economy would see revenge spending going forward and there will be a greater focus on financial planning.

Munot, however, cautioned that excessive money chasing few growth opportunities along with momentum created by flows to ETFs, narrowly-defined ESG products, higher proportion of machine trading and Robinhood effect together have led to excesses in certain pockets.

“Expectations of a global reflation and broadbased growth have started correcting some of these excesses, and one can expect the trend of reversal in market polarisation witnessed in the last decade to continue,” he said.