The sweltering heat is not all that Indians have to contend with. Investors have braced themselves for volatility too.
The trajectory of oil prices, India Inc's quarterly results, the outcome of the General Elections, the collapse of Jet Airways, and bad debt issues are all issues of concern.
Renowned investor Basant Maheshwari stated in an interview recently that the consensus is that the incumbent government will be back, so the post-election rally will happen pre-election. Once the government is voted back in, there won’t be too much of a flurry in the market.
Here is what a few individuals have been expressing.
Vikas Gautam, CEO of Aditya Birla Sun Life Asset Management
If the outcome of the election is a fractured coalition government, it is going to create some kind of volatility.
Any blowup on the geopolitical side could again create some kind of volatility and could put the market on a backfoot.
The key risk that we see is what's happening between the U.S. and China on the trade tariff. If this is not settled, if this continues to get postponed for a long time, this will have a ripple effect on the market.
A bigger risk which has started emerging over the last couple of weeks is the signal which is coming in from the U.S. Fed on account of a pause in the interest rates and maybe doing away with the tightening. And there could be the possibility of it starting to ease again in 2021. If there is a scenario of the global countries of the world getting into some kind of recessionary mode, that could have a ripple effect on emerging markets, including India.
Source: Morningstar Canada
Uday Kotak, MD and CEO of Kotak Mahindra Bank
For many years we have discussed about the challenges in the real sector to the financial sector. This time we are talking about the challenges in the financial sector and the impact of that to the broader economy.
I do believe the next six months will be crucial in terms of how India handles its financial sector.
In many ways what happened at IL&FS last year was the first signal about the challenges that the financial sector is likely to be having as we go forward. That is something you are now seeing more closely as liquidity in the system gets tighter.
Financial companies whose balance sheets are funded by wholesale liabilities are put under significant pressure on the asset side. That is something which is playing out as we talk. This is a classic case: the chain is known by the weakest link. For the weakest link, when liquidity gets tighter, they start seeing the pressure. That is the time when the quality of a balance sheet of a financial player gets to be very very crucial.
Source: Bloomberg
Saurabh Mukherjea, Founder of Marcellus Investment Managers
Two years ago, I started sounding the alarm bell on various television channels about the state of the NBFC sector and the associated problems with debt mutual funds, which is very much the banker to the NBFCs and the HFCs. Clearly a lot of these businesses have unviable business models. You cannot be borrowing money in the short-term money market and then lend it for 20-year home loans. It makes no sense.
I think we are half-way through the blow up. My reckoning is the rest of the blow up in the sector will happen in the 6-7 months following the general elections.
As we read every day in the newspapers, debt mutual funds are having a serious problem with their exposure to the sector and to other promoter funding vehicles.
Those problems will exacerbate over the next six months and we are only half way through what will be a brutal shake out in the HFC and the NBFC sector. There will be a few champions who will be left standing, top of my head I cannot see more than three credible NBFCs surviving this brutal shake out over the next two years.
Source: Economic Times
Priyanka Kishore, Head of India and Southeast Asia economics at Oxford Economics Ltd.
The RBI decision to allow some weak state-run banks to resume lending is a “short-sighted” approach and risks building up bad debts with renewed vigor. Of the 11 banks on whom tough restrictions were placed since 2014, 5 have recently been allowed to exit the Prompt Corrective Action sanctions.
The short-term palliative comes at a long-term cost. Pushing back full resolution of stressed bank balance sheets is only likely to prolong India’s investment malaise. With bad debts concentrated in the industrial sector, weak public sector banks are likely to continue to limit their exposure to these entities, which, in turn, should keep investment growth trapped in the low double digits and cap India’s growth well below the desired 8-9%.
Source: Bloomberg
