What’ll drive investments this year?

Posted online: Monday, Jan 06, 2014 at 0000 hrs
In 2013, markets faced several challenges such as sharp outflow of funds from the Indian debt market, rupee depreciation of almost 25 per cent against the dollar in a matter of three months, negative returns from debt funds because of huge swings in the short-term interest rates, and volatility in the equity markets in anticipation of tapering in the bond purchase programme of the US Federal Reserve. The year also witnessed gold generating negative return for investors, and all major asset classes remaining under pressure. While 2014 is also being looked at with apprehension as the year braces up for the general elections, and fallout of the tapering of bond purchases by the US Fed, there are expectations that the economy will growth. A clear mandate to any coalition or party in the elections may lead to a revival of investment by companies on their projects, and a surge in the stock markets but a failure on that part may further doom the prospects. Express Money presents the views of the leaders in the financial industry on how they perceive the year 2014 to be:

Chanda Kochhar,

MD & CEO, ICICI Bank

‘India’s future cannot only be viewed from the perspective of just the coming months but also needs to be viewed through the prism of India’s long-term prospects.’

In the next decade or so, India has the potential to be a global economic power, growing at a robust pace driven by its demographic profile and its strong infrastructure and industrial investment potential. As for the near term, I believe that the economy has bottomed out, as evidenced by the second quarter GDP numbers. The CAD has been brought under control, and that together with the measures to bring in capital flows has made us better prepared for the tightening of extraordinary global liquidity. We see growth improving in the coming quarters. Agricultural growth has been reasonably good this year and export-driven sectors are expected to benefit from the currency depreciation and better global growth. Some progress is also being made on delayed project approvals. However, we need to think beyond these cyclical trends and challenges and prepare ourselves to realise India’s full potential across sectors. We need a stable and facilitative environment for building infrastructure. We need to give a focused boost to manufacturing, to create jobs and reduce import dependency. We need to drive accelerated growth in agriculture by addressing supply chain issues, which will improve rural incomes, reduce wastage of produce, reduce dependence on imports and contain food inflation. We need to focus on education and skill building to leverage our demographic dividend. We have faced and will continue to face several challenges. In a volatile and rapidly changing global environment, there will always be unexpected events that we cannot foresee. We need to take all necessary steps to harness India’s domestic growth drivers to ensure that the rise of India is unstoppable.

Nilesh Shah,

CEO, Axis Capital

‘Equity markets will be volatile in 2014’

Though, nominally, the market looks near all time high level, in real terms barring FMCG every other sector is trading below its median average valuation of last eight years. While it will get support from a shift towards financial savings and from fair valuations, it will face uncertainty of election outcome and will look up to investment revival by the new government. A large part of volatility will also come from the fact that there is high polarisation towards sectors like technology, pharma, FMCG on one side and capital goods, real estate, metals, auto on the other side.

Mid and small cap have under-performed large caps significantly and these is a chance that select (free cash generating, dividend paying) small and mid cap stocks will deliver better return.

Gold as asset class has been a favourite with Indians but considering the import duty and spot premium for physical gold, it should be strictly avoided. Those buying gold for investment must remember that what they buy here is 15-20 per cent cheaper in most parts of the world.

In the fixed income space, rates are at elevated level and they may remain there for some time. Tax free bonds, IPOs provide best opportunity for investment for high tax bracket investors. CPI inflation indexed bonds provide great opportunity for other investors.

KR Kamath,

Chairman and Managing Director,

Punjab National Bank

‘Economic situation will improve and level of stressed assets can fall’

I think things on the economic front are going to improve now. It now looks like the worst is over and has bottomed out.

The Reserve Bank’s statement on the increase in risks to the banking sector has to be seen from the rising stressed assets in the banking sector. This is linked to economic situation which was facing a slowdown. There are no other risks in the banking sector.

The NPA situation in the banking sector has a lot to do with the economic situation. One expects the economic situation to improve and consequently the level of stressed assets can fall.

On the price front, I expect inflation will fall and brought under control.

RBI Governor Raghuram Rajan has already said he wouldn’t raise rates just for one factor — inflation — and would take other factors to take a decision.

I am looking for some relief on the interest rate front.

Ramesh Iyer,

MD, Mahindra & Mahindra

Financial Services

‘Interest correction and economic revival will lead to resurgence of growth’

While the impact on the rural economy has not been as severe as that on the urban India, consumption in the rural economy is also expected to witness a surge and need-based products such as goods carrier, people carrier and tractors will continue to maintain the average growth rates.

I clearly see the benefits of good monsoon in 2013 to be there in 2014 and even the January harvest is expected to be good. The first quarter of the calendar 2014 will benefit from the good monsoon in 2013 and good January crop. After elections get over things should settle down and begin to improve from the middle of 2014.

The festival season in 2014 will see the revival of the economy and infrastructure growth as they will bounce back this year. Inflation should also come down as the food prices have started to soften and I expect the interest rates to soften in the second half of the year. Interest correction along with economic revival will lead to resurgence of growth.

The year should witness demand for automobiles and consumer durables pick up as growth comes back.

Keki Mistry,

Vice Chairman & CEO, HDFC

‘Interest rates should come down by

25 basis points in the first six months’

I do not think there will be an increase in the interest rates by the RBI over the next three months but I think that interest rates will begin to soften after April. In the next six months, interest rates should come down by 25 basis points. The RBI is getting some comfort as food prices have started to come down. Earlier, high food prices led to a high inflation as it has a high weightage and a fall in food prices will lead to a fall in the overall inflation. This will provide RBI with some comfort. The housing finance market will continue to grow over the next few years. There is a fundamental demand for housing because of young population. While the average age of buying a house is 35 years, with 60 per cent of the population below 30 years of age, there will be need and demand for housing and home loans.

Milind Kharat,

CMD, United India Insurance

‘Infra projects will speed up and create positive impact on economy’

I expect improvement in the economic situation in 2014. You can see that some recovery is already happening. I think infrastructure projects will speed up and it will create a positive impact on the economic situation of the country.

Some sectors, particularly the motor insurance segment, had slowed down because of the slowdown in the auto sales. However, the insurance sector growth in 2014 would be less than 2013. I don’t think any major policy changes would be in the offing.