Zee Business Bureau Chief Mihir Bhatt caught up with HDFC Chairman Deepak Parekh on his views on Indian Economy, Capital Markets, Reforms and way forward. Excerpts from his interview.
2013 is beginning on a much better note compared to 2012. Is this optimism rightly placed?
Current optimism in the environment is realistic. Year 2013 will be comparatively better than year 2012. Impact of reforms will be seen in 2013. I am confident of higher growth prospects for next few years. One can expect GDP growth of 6.5% for fiscal year 2013-14.
Cabinet committee on Investment (CCI) is a good initiative by Indian Government. CCI will take hard decision very quickly. Over 2 lakh crore worth of projects are stuck due to pending clearances. It is significant that CCI can overrule the decision of ministries. Directions and faster clearances from CCI can get the economy moving.
Is it the right time for us to make right what was wrong economically?
Investment cycle should begin for growth to pick up. Industrialist and entrepreneurs need to be given confidence to do business. Large number of power projects are stuck half way. It is ironical that two separate department of the same government are involved in infighting. I am hopeful that PM will take action in cabinet committee on investment.
Do you endorse the target of fiscal deficit stated by Finance Minister?
Fiscal deficit of 5.3% is achievable and the roadmap for next 5 years perceived by FM looks realistic. Large amount of unused funds will come back to centre states in March. Direct tax recovery has been very buoyant as well. Profitability of corporate will begin to show improvement this quarter. There is too much pressure on RBI governor for cutting Interest rate. We can expect modest rate cut of about 25-50bps in the January Policy. Inflation numbers also justify that rates should be cut now.
What is your expectation from RBI in this year?
We are much behind the curve in cutting interest rate. Capital is available at much cheaper rates in US, Europe. We expect RBI to cut rates by 150bps in year 2013.
The bigger issue here is India despite being a structurally strong story often becomes cyclical story. What`s your take on the same?
India is a very big market and is continuously growing bigger. Consumption story of Indian consumers is still very strong. India is good country for any MNC`s who wants investment. Good demography of India is positive for foreign companies. We need to ease rules for foreign companies which the country is lacking right now. Two large corruption cases have hit the image of our country globally. We also have to improve reputation for getting good FDI.
The general perception internationally that we have built by default is that India can`t manage its resources well. Your views?
Corruption is a global phenomenon and is present everywhere worldwide. We need to bring more transparency in our country. Case of Coal India going back on its agreement is atrocious. Power plants are lying idle for lack of coal supply. Old gas pricing in today’s market is not viable. Companies can’t even achieve cost break even at current price of Gas. Difference between imported gas price and that of domestic is very high. My sense is Coal and gas issue are on verge on settlement. PMO may ultimately intervene on these issues. Energy wheel in India will start moving if this happens.
2012 turned out to be good year for capital markets in terms of FII inflows. What`s your expectation from markets in 2013?
Indian markets got about USD 23 billion of net foreign inflows last year. I don`t think Indian markets will get so much foreign flows in 2013. I am surprised that even after so much foreign flows rupee has collapsed. Weak export and high gold consumption are main reason for weak Current Account Deficit. Let’s expect international oil prices to moderate by about 10-15% which combined with lesser gold imports will help us reduce deficit. Capital markets for year 2013 will be much better than year 2012.
One major development on the oil scenario internationally is US inching towards becoming net exporter in future. How this will shape things globally?
USA being oil surplus is a big game changer. What remains to be seen is what steps oil producing countries will take on oil production. But USA will take 5 years to export.
If you were to play devil`s advocate, which is your biggest worry in India right now from economic perspective ?
I am currently worried about Rupee being weak. Weak currency is not good for reputation of any country. Over dependence on oil in Import bill can be a big challenge. We need to increase taxes on gold and curb the consumption. Trading and speculation in gold has to be brought down.
You mentioned about Gold. Is it time to start taxing commodity trading? I mean is it time to have CTT?
Commodities transaction tax (CTT)will happen next month. It will help in bringing down speculation and trades. Trades are happening in such large volumes in commodity, CTT will help.
What`s your view on real estate demand. We have seen dip in demand in markets like Mumbai?
Demand in housing sector is still very high. Real estate demand in Mumbai exists but affordability is an issue. In Mumbai 60-70% of house cost is due to land cost. If land prices come down then only residential prices will become affordable. Lot of empty space in residential buildings is available. There Is massive surplus in commercial real estate due to which commercial prices have dropped. Same should happen in residential markets too.
In this scenario what`s your view on credit off take for HDFC?
I expect sanction and disbursement to grow by about 20% this fiscal. Our credit growth base is becoming very large.
Do you expect robust capital markets in 2013?
LIC has lot of money to be invested in markets. Insurance companies are also becoming more aggressive on equity market investment. We have seen some positive flows for Mutual fund industry even after redemption. Overall domestic investors are becoming more aggressive. Good name and brand of company always has demand in international markets.
SEBI has constantly expressed concerns about IPO pricing. Your take on that?
We need to excite retail investors. We can’t let our market run by remote control. FIIs follow herd mentality. When they exit , they exit in herd which is risky. Retail investors need to be incentivised for revival of equity markets. Dominance of foreign inflows is too high in Indian equity markets.