The stock market pundits continue to be divided over the efficacy of the much-awaited stimulus measures announced by the finance minister on Friday. Shivani Bazaz of ETMutualFunds.com spoke to Jimmy Patel, CEO, Quantum Mutual Fund, for his perspective. Edited Interview
The much awaited 'stimulus' is here. Do you think the announcement of stimulus will improve the market sentiment?
It is too early to speak about the market sentiment. If you remember, even when the budget was announced, all the market pundits said that it is a forward-looking budget. After a few days, they changed their statements. Technically, there is not much that we can see. If NBFCs can use bank-related KYC, how is this helping them to improve their business? There is no ease of business, how is the bank going to share the data? Today, banks are not sharing data within the financial framework. It was a very good PPT, but then we all know how PPTs get converted into action. We will have to wait and watch how it works on the ground.
Getting into the specifics, withdrawal of supersurcharge is supposed to make Foreign Portfolio Investors happy. Do you think this alone would lure them back to the Indian market in the absence of sure growth prospects?
Not necessary, because, while taxation was one aspect, the fundamental attributes in the market or the scrips in the market are also the reason. When the economy is not doing well, performance is not up to the mark, how will the markets perform? If the markets don’t perform, why will a foreign investor invest? It is an emotional issue on surcharge, but it need not necessarily get converted into money coming back
The finance minister announced the release of Rs 70,000 crore upfront to PSBs for additional credit facilities. Will this help the banking sector?
It will help the banks, but then the banks must pass it on. No more hiccups should come in terms of NPS etc. There is much to do in the banking sector in terms of transparency, efficiency, use of technology, these things should be highlighted. Plus, getting pay-outs in terms of credit facilities and passed on to the real users. If, for example, the companies are not doing well, will a bank lend to those companies? It is a circle.
The finance ministry is supposed to work with the RBI to make bond market conducive to investors. What does this mean for the debt market and debt mutual funds?
If we were to look at theory, liquidity is created which will benefit good companies with good ratings. We must focus on will the ratings remain good? There will be concerns about businesses that are not doing well. Having gone through the recent issues in debt mutual funds, the fund houses will be wary of investing in lower-rated companies. Sebi is pushing for investing only in rated papers. A lot will depend on the fine print that will be issued over time. We must see how the industry takes this move.
Liquidity support to HFCs increased to Rs 30,000 crore. Is this step going to boost the fortunes of the infrastructure sector?
The liquidity for the HFCs has been improved but no announcement about the government input on infrastructure support. There are no major actions by the government happening on the infrastructure front. Liquidity support right now is just a statement. We must see the actual spending done by the government. Both are very different. Until we see some action after these announcements everything remains where it is.
There were multiple policies for NBFCs in the announcement. Do you think the announced steps are enough to deal with the NBFC crisis?
Per se, they are all announcement. Historically, what we have seen till now, not much of these announcements have been translated into actions. Another important thing to ask is- where will the money come from? The liquidity support announced in the budget and this liquidity support but there was no granular vison of generating these surpluses. Right now, it is just policy on the paper. We must see how the industry passes it on to the needy NBFCs and how they benefit from it. As of now it is all gloomy.
Auto is also expected to benefit from the stimulus. Please comment.
If you analyse, so many ministries are making policy announcements for the automobile sector. It is confusing. With new technologies around the corner, no sensible investor would like to buy an old model. In the Indian model, everyone is thinking if you buy the old now and it gets scrapped in a year or two (because of BS6 norms), what will happen. So, this stimulus is all about I buying my own product. In this scenario, I should also have the need and money to buy my own product. So, it is not a long-term solution.
The finance minister has said she is likely to announce more measures in the coming weeks. What are your expectations?
I believe that some announcements on infra spending with committed dates would be a great step. The need of the hour is to translate announcements to actions. There are still multiple schools of thoughts about overseas borrowing which was announced in the budget. I believe there needs to be a little extra homework done by the government before it goes out to borrow.
How are these measures going to impact the finances of the central government? Government’s fiscal health has been a cause for concern for most stock market pundits lately.
Presumed that everything announced will happen, it will take a toll on the country’s financial health. In addition to these announcements, there is a PSU sector to be supported. If the disinvestment plans happen as planned, then we might be in a good position. Otherwise, there will be concerns about where the money will come from.
What is your advice to mutual fund investors? What should be their strategy?
I would say, don’t be adventurous on the back of these stimulus. Mid and small cap segments are risky, enter only if you have the appetite. If you don’t want to take extra risk, stick to multi cap schemes, and go via the SIP route.