“India is on a strong wicket”

A Balasubramanian, CEO, Birla Mutual Fund and president, AMFI, is optimistic about the rally in the Indian capital markets. The structural changes being implemented in the economy will get reflected in corporate sector earnings soon. A part of the liquidity in the markets could be absorbed by the IPOs scheduled to hit the markets in the coming months. “India is better placed than other emerging markets to attract capital flows from investors, both from across the globe as also domestic investors. In an interview with Daksesh Parikh, Balasubramanian explains the rationale for his optimism

Are we witnessing a multi-year bull run?
Yes, India is getting structurally stronger. The implementation of GST and the demonetisation exercise carried out last year will see the informal economy also getting integrated with the formal economy. The GDP will rise. Moreover, India as compared to other developing economies, is better placed. Growth is looking up and till 2025, I expect India to remain on a strong wicket.

Can liquidity alone strengthen the rally in the absence of visible growth?
As of now liquidity is likely to continue. Interest rates are low and are expected to remain so due to low inflation. However, liquidity is not the only factor which is pushing up the market. Expectation of growth is also one factor why investors are keen to invest in Indian companies.

Liquidity of course has to be backed by fundamentals in the foreseeable future. However, with more and more IPOs hitting the capital markets, a part of the liquidity is also absorbed. I also expect promoters to take advantage of the current rally in the capital market and dilute a part of their holdings to raise funds through new offerings in the markets. The free float of the companies will go up.

Are domestic institutions and mutual funds sufficient to counterbalance FIIs?
We are getting there. Funds inflow will keep rising in the mutual funds. There is a distinct shift in the Indian savings habit with more savings being earmarked to the capital markets through mutual funds.

What is AMFI doing to widen the retail investors' base? What is the aim of having the Vision 2025 white paper?
AMFI aims to expand the investors' base, and increase the reach through deeper distribution. AMFI 2025 is a blueprint to allow this to happen. AMFI's aim is to ensure every investor considers mutual funds seriously. It wishes to see mutual funds becoming the first choice of investors. The changing demographics and the increase in disposable income in the years to come will soon make this a reality.

Do you see corporate earnings growth picking up in 2017?
The trend of corporate growth is positive. We expect this to continue for the next few quarters at least. The stable cost structure augurs well for companies. Operating in a low interest rate scenario is a big plus. The implementation of GST is another. I am of the view that GST will soon become a nonevent in the coming months. Like demonetisation did despite all the fears raised initially when it was announced. There will be a pick up in consumption growth. I am quite hopeful of the Indian corporate sector doing well.

What about investment demand? Do you expect to see companies committing capex to new projects?
I feel that the pick up in investment demand may not happen in a big way this year. One may have to wait till 2018-19 to see a sustainable rise in investment demand. This will also coincide with the next Lok Sabha elections.

What is your view on the proposal to merge banks? Will it happen?
I expect to see a pick up in M&;A activities as also consolidation happening in both private and public sector banks. M&;A activities will make business models much stronger. In the case of PSU banks, merging weaker banks with relatively stronger banks makes sense. This was witnessed in the merger of SBI with its subsidiaries. Tackling bank unions may not be a mammoth task, as is being perceived. They will also realise that for revival, a merger may be the last chance. Further, with the new mechanism set in place for speedy redressal of the NPA issue, there is a good chance for the banking sector to get back on the recovery track. The recent listing gains of a new bank show that investors still have a fancy for good performers.