Capitalmind Podcast - How Slow Is The Indian Economy? (Episode-8)

How Slow Is The Indian Economy? (Episode-8)

09/08/19 • 59 min

"Under normal circumstances, merging PSUs would have been impossible, had the government tried it 5 years ago, there would been riot on the street, today there is not even a murmur. They were able to do that because the slowdown is obvious!" - Deepak Shenoy

Host Deepak Shenoy (CEO) and Aditya Jaiswal discuss about the economic slowdown witnessed in the Indian economy.

Read Full transcript: https://www.capitalmind.in/2019/09/podcast-how-slow-is-the-indian-economy-episode-8/

The Podcast was divided into three broad sections:

a) Macro indicators (20 mins)

b) Recent federal regulations (8 minutes)

c) Few sectors which are currently facing a slowdown (30 mins)

Below is an excerpt of the podcast with time stamps of important sections!

1) Macro-indicators

1:40- GDP growth:

We have had 5 consecutive quarters of decelerating GDP numbers, right from 8.2% in Q1 18 to 5% in Q1 19, this was the slowest growth in 25 quarters. How bad the situation is and is the worst behind us? Or should we expect a couple of more tepid quarters?

3:20- Inflation:

Inflation has been under control, it has been consistently falling for 6 straight months since Jan 2019, when inflation is under control, why is the GDP falling?, does this reflect weakening demand ultimately cooling off growth? Weakening of demand is concerning because we recently heard two big biscuit manufacturers going on record to say that people are not buying even 5-rupee packet biscuits.

8:07- Unemployment:

Unemployment in FY18 stood at 6.1%, a 45 year high, now with big manufacturing units announcing massive job cuts, auto alone has seen 2.3 lakh people losing jobs, where do you see unemployment situation going in the near term?

11:02- Private consumption:

Private consumption which constitutes about 58-59% of the GDP has been slowing down. Urban wage growth has stagnated, white collar wages have been slowing and rural consumption has also fallen on back of collapse on food prices and job cuts by manufacturing units, where do you see this going?

15:00- Investments:

We looked at the GDP growth, inflation, unemployment and consumption, let's talk about investments. The gross capital formation has fallen from 34% in 2011 to 29% in 2018. Do you believe that we are stuck in a low growth cycle (Falling wages- falling savings, falling investments and low GDP growth)?

2) Recent federal regulations

20:30- Impact of GST and Demonetization on the economy

About 30% of the Indian economy is completely informal and employs a chunk of the population. In 2014-15, late Arun Jaitley had made a statement, the informal sector doesn’t want to operate in shadows, neither they are corrupt, rather it was a failure on the part of the federal governments that even after six decades of independence, we couldn’t integrate them with the formal economy”

In the pursuit of this integration, the government went ahead with the vision of cashless economy, demonetization and GST. Do you believe that demonetization and GST have actually hit the informal sector really hard? Do you think, somewhere, it turned out to be a shock therapy for the unorganized sector?

3) Sectors

28:18- Real Estate

Residential real estate which was mostly fueled by black money is really not moving except the affordable housing part. Now that black money is hiding in may be gold! How will that come back into the economy? Where do you see the sector going?

33:09- Automobiles

Now, we all know that there is a crisis in the Indian auto industry, all big manufacturers are reporting double digit falls in volumes. TVS chairman made a big statement, that this slowdown is the worst in 3 decades and spread across sectors. Auto stocks recently witnessed buying interest in the anticipation of a GST cut, do you believe that a GST cut can change the fortunes of the sector?

41:28- Automobile replacement cycle

A lot of existing car owners have started using Ola/Uber/Quick ride and this has led to postponement new car purchase, where do you see the replacement cycle going forward?

45:23- FMCG

Parle-G and Britannia went on record to say that people are not buying even INR5 rupee packet biscuits. But FMCG stocks still command relatively high premium, why is that? Do you see optimism in investors, that among autos, infra, discretionary, real estate, financials, FMCG will be resilient.

50:50- Final thoughts!

You can also listen to our podcasts on our app:

Host Deepak Shenoy (CEO) and Aditya Jaiswal discuss about the economic slowdown witnessed in the Indian economy.

Read Full transcript: https://www.capitalmind.in/2019/09/podcast-how-slow-is-the-indian-economy-episode-8/

The Podcast was divided into three broad sections:

a) Macro indicators (20 mins)

b) Recent federal regulations (8 minutes)

c) Few sectors which are currently facing a slowdown (30 mins)

Below is an excerpt of the podcast with time stamps of important sections!

1) Macro-indicators

1:40- GDP growth:

3:20- Inflation:

8:07- Unemployment:

11:02- Private consumption:

15:00- Investments:

2) Recent federal regulations

20:30- Impact of GST and Demonetization on the economy

3) Sectors

28:18- Real Estate

33:09- Automobiles

41:28- Automobile replacement cycle

A lot of existing car owners have started using Ola/Uber/Quick ride and this has led to postponement new car purchase, where do you see the replacement cycle going forward?

45:23- FMCG

50:50- Final thoughts!

You can also listen to our podcasts on our app:

Previous Episode

The Investor Wants to Know (Episode-7)

Host Deepak Shenoy (CEO) and Aditya Jaiswal discuss investor queries in a new show - The Investor Wants to Know.

Topics discussed include passive investing, current NBFC scenario, slowdown in the auto sector, cooking up of books by companies, fundamental analysis, global recession, surge in gold prices, aviation industry.

Read Full transcript: https://www.capitalmind.in/2019/09/podcast-the-investor-wants-to-know-episode-7/

Notes:

How do you see the investment horizon for different categories of MFs?

If you are looking for a horizon for investing, then it's not investing, it's a trade! Asset allocation metrics (large, mid and small caps) can shift, but horizon should be long term. Stay invested as long as you don't need the money!

What are your views on passive investing? Is it advisable to invest in small cap index funds as most of good performing stocks will become midcaps and non-performing midcaps will become large caps which might pull the returns down?

In India, one should look at the large caps because that is where the index funds will benefit the most. If you invest in small cap index, your best stocks are going to move out. Rather, one may look at the stocks which are actually leaving the small cap index.

How bad is the NBFC scenario?

Many of the NBFC's may lose their current structure- few will be taken over, few will be cut up into pieces and sold. Global P/E players are also keen on buying assets on discounts. None of NBFCs will go bust, since they have valuable assets. It will take another year for clarity to emerge.

How to find out if a company is cooking up it's books?

It is very difficult for a retail investor to dig up gold plated numbers, there is no one way. Retail investors should diversify, do not put more than 5-10% in one stock. It's not worth losing sleep over your investments!

What are your views on auto sector?

We are going through a time when people are not buying cars, at the same time, India is not at a stage where people who aspire to buy cars or bikes, have bought enough of them. China sells 16x more vehicles than India. This is not an unending cycle or death of auto industry.

You can also listen to our podcasts on our app: www.capitalmind.in/podcast

Next Episode

Should The Indian Government Borrow From Abroad? (Episode-9)

We discussed five broad questions:

1) Should India borrow abroad, if yes, then why? (10 mins)

2) Domestic liquidity issues and crowding out effect (8 minutes)

3) Why are experts (Ex- RBI governors) against this move? (3 mins)

4) What are risks o going overboard with overseas borrowing? (4 mins)

5) Risks of borrowing abroad (15 mins)

Below is an excerpt of the podcast with time stamps of important sections!

Read full transcript: https://www.capitalmind.in/2019/09/podcast-should-the-indian-government-borrow-from-abroad-episode-9/

1.Should India borrow abroad, if yes, then why? (2:00)

The government borrows roughly INR5 lakh crores net per year. In the next year, the estimate of revenue that we want to collect just taxes, Indians will collect about 16 lakh gross, the government will pay 6.5 lakh crores in debt interest payment. About 40% percent of all of money that you're paying as a tax, is going not to build infrastructure, not to feed the hungry, not to pay farmers for food. It's going towards interest payments on the debt they borrowed in the past. Why would this be a problem? because we borrow debt at extremely high rates part. And here's the important thing, India's own companies that borrow abroad (ONGC for an example) has a bond issued in euros and euro denominated debt...

2. Domestic liquidity issues and crowding out effect (10:40)

You know, this is interesting, because what some of the economists have put across is or you know, what Indian Government is borrowing 3.3% and 2.2% is by states and some 4% is something else. And therefore, India's gross financial savings, which is about 10% of GDP out of which about 8% of GDP is borrowed by the government, my answer to that is that's not true!

3. Why are experts (Ex- RBI governors) against this move? (18:00)

About 1% of GDP is about 2 lakh crores. I think it's too small. I think in any given year, you can say don't borrow more than 1% of GDP. That's fine. I don't think India will see appetite for more than 10 billion euros at this point, which is about 70-75,000 crores thousand crores. I don't think any more appetite exists right now because everybody wants to wait and watch. And I think this is a good start. If there is an appetite, of course, we can look at more, I think you know, go and give more and buy a bottle more, especially if they're going to give it to you at negative rates, just go and borrow as much as you can, up to say 10% of the total debt...

4. What are risks o going overboard with overseas borrowing? (21:00)

The problem is that, what if another government is in power, right?. What if the same government is in power? Your problem is this, you're creating debt, it could be a poison- poisoning the well phenomenon. And the idea is that poisoning the well is like, you know, when, when people used to attack another country, these two are another place which will which had a fort, the idea was to throw poisoned frogs, rags, with darts and arrows. Some of them could fall inside a well which would then get poisoned, then nobody would have any source of water and everybody would die. Poisoning the well is to say to the next person that comes here, he will not enjoy that place because the water will be poisoned, they won't be able to drink the water. If you poison a well, you too can't come back!

5. Risks of borrowing abroad (24:50)

I think the point is if we borrow $100 at 70 rupees, we get 7,000. We may get it at 0.45%, but three years later rupees or 100. And then we return the hundred dollars and we return 10,000 rupees.