Conversations with Arun Thukral, MD & CEO - Axis Securities
Nov 30, 2015
Fed meeting is scheduled in December 2016, there is rising consensus that fed will hike interest rate in the meeting. A higher US interest rate can lead to capital outflows from the emerging markets resulting into depreciation of emerging markets’ currency. The impact on Indian markets will not be significant (as was in 2013) given that the economic situation of India is much better than 3-4 quarters ago. The upward movement in global yields in November, indicate that the markets have partly discounted the 25 bps increase in US Fed Rate.
In previous one year, the government has come out with various reforms for economic growth. All these reforms will yield result in medium term. The core action at the ground is being missed by the markets and we believe the consolidation of the markets should be used as an opportunity by the investors.
Government has taken several steps such as hike in excise duty on diesel & petrol, increase in clean energy cess etc to fund the capital expenditure. Capital expenditure of India has grown 29% Y-o-Y in H1FY16 as against 2% Y-o-Y growth in H1FY15. Government targets for 61% higher capex in FY16 to boost the growth of the country. Despite huge capex, Government is on-track of achieving fiscal deficit target of 3.9% of GDP for FY16. Soft crude price is acting as a blessing for India’s fiscal deficit to be on track.
The Seventh Pay Commission submitted its report to government, recommending 23.5% increase in central government employee salaries. Higher income will lead to increased consumption on discretionary items. Despite increased consumption, inflation will remain on deflationary path on account of soft commodity prices and moderate hike in MSPs.
Government is trying to pass bankruptcy and GST bills in the ongoing winter session. GST will remove several indirect taxes and duties levied by the centre and states. The passage of GST bill could act as a single most important trigger for market in near term.
A passage of GST could provide a spark to the otherwise cold markets. Market is consolidating, but it’s time for action to accumulate quality businesses with high RoEs and run by management with honorable track record.