CEOs bank on festive cheer; India Inc hopes for improvement in second half

Demand to pick up from festival season next month, say corporate leaders

While top India Inc leaders have raised concerns about the economy in the past week, a large number of chief executive officers (CEOs) expect growth to improve around the festival season, starting next month, due to falling interest rates, increased government spending in social schemes, and infrastructure projects. This would positively impact consumer demand, they said. 

Last week, three stalwarts of Corporate India, Housing Development Finance Corporation Chairman Deepak Parekh, Bajaj Auto Chairman Rahul Bajaj, and Larsen & Toubro Chairman A M Naik warned about the present state of the economy. 

Bajaj was critical of the state of the economy: “There is no demand and no private investment. Where will growth come from? It doesn’t fall from the heavens.” 

Naik said, “Even if we can maintain 6.5 per cent, we will be lucky. It is going to take a year or a year and a half before accelerated spending for development comes.” 

Parekh said banks’ reluctance to lend to non-bank financial companies (NBFCs) had led to access to credit being choked. He added, “One is hopeful that normalcy will be restored soon. By the time the festive season sets in, some of the risk-averseness should taper off.” He added that re-instilling confidence in lenders to support growth in the economy was critical. 

Other CEOs also expect things to improve in the festive season and the second half of the financial year.

Their optimism comes from a further decline in interest rates, which, they said, would spur consumer demand from September. 

On August 7, the Reserve Bank of India will be taking a decision on rate cuts, with most experts expecting a 25-basis point cut. If a cut does come through on Wednesday (August 7), it would be the fourth consecutive rate cut of 2019. This would help demand from customers who have postponed their decision to buy cars, motorcycles and homes, say CEOs. 

“The first half of 2019 has been challenging, but we expect the economy to perform better in the second half of this financial year,” T V Narendran, CEO and managing director (MD), Tata Steel, said. 

“In the last few months, especially around election time, India saw significant slowdown, but we expect economic activities to gather momentum as India moves ahead. The government’s continued push for investments in the infrastructure sector, along with several social and economic measures, will have a positive cascading effect across sectors of development,” added Narendran. 

While auto sales have been under tremendous pressure, Narendran said he expects demand to pick up in the upcoming festive season. “We also expect the rural demand to pick up as we had a good monsoon. The action being taken to improve liquidity in the system should also have a positive impact in the months ahead. Overall, despite the challenges, we are optimistic about the economy and its growth potential,” said Narendran. 
 

Why is India Inc optimistic?
 

• Successive interest rate cuts to boost demand
• Good monsoon to boost rural demand
• Increased government expenditure to reflect in second half
• Corporate credit to grow by 12% in rest of FY20

Other CEOs concur. “The revival in monsoon, easing of interest rates, higher government spending on infrastructure is strong stimulators for pump-priming the Indian economy in the second half of 2019-20 (FY20). The expected resolution of large pending non-performing assets, coupled with proposal for further recapitalisation of banks and facilitating availability of credit to NBFCs and housing finance companies, is also a booster for revival of lending to the industry,” said JSW Steel Joint MD and Group Chief Financial Officer Seshagiri Rao. 

“The finance minister in her maiden Budget speech announced several growth-promoting and reformist measures without compromising on fiscal discipline. I remain very optimistic about the long-term growth prospects of the Indian economy as we set sights on the $5-trillion economy target,” Kumar Mangalam Birla, chairman, Aditya Birla Group, said. The Birla Group was one of top business groups to have invested over Rs 40,000 crore in cement, telecom, and financial services, apart from acquiring companies overseas in the last five years. 

“The slowdown being experienced right now is driven majorly by cyclical and sentimental factors and the economy is structurally robust and on course to reach $5 trillion in the next five years, with a stable government at the Centre,” said Rao. 

Bankers said corporate credit is expected to go up on average by 12 per cent in the rest of FY20 as they pass on the benefits of lower interest rates to consumers. “We should not be that negative on the economy side. The infrastructure sector is seeing good investment. Our economy will surely bounce back,” said Union Bank of India MD and CEO Rajkiran Rai G. 

The optimism of top CEOs comes against the backdrop of the Indian government increasing its spending in rural infrastructure, housing and electricity for all schemes, and health care benefits to the poor. With monsoon picking up pace, the fortunes of consumer products companies like Hindustan Unilever (HUL), Patanjali Ayurved, and Dabur are set to improve.  HUL Chairman Sanjiv Mehta said: “We remain optimistic that the second half of the current financial year will be better. After a slow start, monsoon has picked up in different parts of the country and there is rural push, which the government is giving to get rural areas on the growth path. I don’t think there is a need to be despondent.” 

Since the Budget announcement last month, which imposed super-rich tax on foreign portfolio investors, the Indian stock markets have lost close to Rs 12 trillion of market capitalisation. Besides, the negative message from the finance ministry has further dampened the mood of corporate leaders.  Biocon Chairperson and MD Kiran Mazumdar-Shaw said sending company officials for defaulting on corporate social responsibility (CSR) spending is a regressive move. “Criminalising CSR is wrong. Why is the government scoring self goals?” she asked on Saturday. 

Analysts at Kotak Securities say the reasons for the slowdown are more structural in nature than cyclical. “As such, the solutions to reverse the current slowdown will also have to be structural, which would entail tough economic reforms,” wrote Sanjeev Prasad, Suvodeep Rakshit, and Sunita Baldawa from the brokerage.  “We put the current slowdown in the economy in a simple gross domestic product (GDP) construct (consumption — slowing, investment — challenged, government spending — slowing, net exports —questionable), which should dispel any notions about a quick and sustainable recovery in the economy and higher GDP growth rates,” they added.  

With inputs from Aditi Divekar & Subrata Panda