Demonetisation: Topline growth of India Inc seen at 6-8% in FY17
Interview with DK Joshi Chief Economist, CRISIL
Jan 06, 2017 | Source: CNBC TV18
Views on the Growth & growth trend : There is a good possibility that the growth could pick up next year on two counts. One is that you have a weak base and if the Budget is supportive of growth and interest rates already are supportive of growth. So, I think we can see growth already inching towards its trend rate of growth of around 8 percent. I think the average rate of growth in the last 13 years is 7.5 percent, so it is not a great achievement in that sense. However, clearly from the lows we could, as far as the trend rate is getting impacted is I think you will have to analyse much more you will have to look at small enterprises. What I was saying is that the trend rate of growth getting impacted I am not so convinced about that story because there are things that the government has done which lift the trend over the medium run for instances goods and services tax (GST), bankruptcy code these don’t push growth up quickly. They improve your trend rate of growth, so there are things which offset what the demonetization has done. So, it is inter player of both these things that is going to play out over the next couple of years. It is too early to say that the trend has been damaged as of now.
Thoughts on earning growth: I think at the broader sectoral level there are a few themes which are emerging. Investment will probably continue to drive and that to focused on public sector investments which has been the story for FY17. The private sector investment which we were expecting to start off somewhere in 2018 I think will be slightly deferred. Again the capacity utilisation levels are still not up to the levels for the corporate sector to put in investments. Also there is this general sense of uncertainty so public sector capex that is one which is a positive, the second positive is interest rates. I think you have seen some of the large lenders dropping their interest rates that should sort of help most of the corporate at least especially the ones which are stressed on their balance sheets. On the other side the commodity cycle is again picking up. Crude is again moving up, our call is that crude will probably average around mid 50’s or high 50’s in the next year. So, putting all of these together our call for FY18 is that it will be slightly better. FY17 first up was good, but second half is definitely going to be hugely impacted. So, if you look at FY17 our overall topline growth for the entire corporate that we cover looks at around mid to high single digit say 6 to 8 percent growth and that we expect to sort of inch up to around about 10 percent topline growth. On the profitability side the second half again will be muted and based on that our full year profitability call is around 10 percent earnings growth that we expect it to sort of bump up to closer to 14 or 15 percent.
Sector outlook: The ones were especially real estate, where there is larger component of cash we have seen a substantial pressure. Even within the consumption the segments which are more luxury oriented we have seen the pressure. Some of the traditional ones like say metals and cement and some of the others have not done too badly. I believe for next year also infrastructure link liked I talked about so construction, metals, cement and interest rate linked say housing, the auto segment will do relatively better even the consumer durables and FMCG. The ones which are under stress are the ones which are heavily indebted like Pawan Agrawal was talking about real estate sector. Some of the other sectors like say telecom, IT and pharma could face other types of challenges. So, you are seeing a lot of pressure globally for IT; pharma again a lot of regulatory changes. The big opportunity from new drug launches and all that is going to be relatively muted. Telecom is a going to see a lot of pressure from competition and investments, so those are sectors which we believe will be slightly muted next year.