Budget to be positive for boosting growth and demand: S Krishna Kumar, Sundaram Mutual

In a chat with ET Now, S Krishna Kumar, Sundaram Mutual, says more than private, he would more positive on the PSU banks with two years perspective in mind, says Kumar

Edited excerpts:

Everybody thought that demonetisation will have a big impact on the October-November-December quarter numbers for consumption.The results have belied such fears. It seems O-N-D was not a bad quarter at all?

While the consumer sentiment continues to be improving, there was a period where the demand had tapered off at the retail level and that is probably reflected in a lot of surveys and views that emerged. The primary sales have been pretty strong and we have seen that the channel has taken off well. So, therer is a little bit of effect spill-over in Q3 and Q4 and at a primary level.

No doubt, the consumers are coming back as cash circulation has improved and most of us have learnt to deal with digital cash and mobile wallets. So life is a lot more easier for many urban centres. However, the rural centres do suffer still and there is a slow improvement that is happening at this point in time.

At Sundaram. our view has always been that this is going to be a short lived pain and would kind of see the economy hold up pretty well and we should use this to get more invested into the market. That has been our view as we have been discussing and that is kind of playing out well. The budget again is going to be very positive -- from trying to stimulate growth and improve demand outlook -- which will play out over the next couple of quarters.

You just touched upon the budget and the expectation for the consumption sid. What about the rest of the market because there is heightened talk about what is going to come about in form of taxation, for equities, long-term capital gains tax etc. How critical is the budget going to be this time in terms of dictating the market mood from here?

All of us make budget day very important. I am not trying to undermine the importance of the national budget but finally there is a lot the government will do outside the budget. So, there are Budget expectations in terms of the stimulus they could provide by allocating more capital to the infra spending. A lot has been done on roads. Now, railways, Sagarmala ports etc might gain a lot more attention.

In addition, warehouses logistics. more work on irrigation, focus on spreading crop insurance schemes would be important and create more jobs at the lower end of the strata. MNREGA could again be rejigged and enhanced to help society at large to the bottom of the pyramid.
On capital markets, there has been a view floating around for some time that the tenure of period or the holding period for equity stock should be three years in line with debt instruments to avail of exemption from long term capital gains. That move from one to three years has broadly been expected by markets. On the other side, I think the view has been that there has been lot of ramping up rigging up of stocks on the Z categories illiquid stocks and a bit of transfer of wealth across by avoiding taxes therein. There could be some assurance on rigging of illiquid stocks etc. That is a concern that has been going around in the government for sometime.

Given that they have done so much to eradicate black money and corruption and increase the tax rate in the country, some assurance could be expected but the broad investor -- the institutional framework -- is not going to be touched.

This area needs bigger focus and we see that with current interest rates, the outlook on real estate being so weak and gold not going anywhere, clearly equities will benefit from the growth in personal savings. With inflation at around 3-4%, the disposable income is going higher and savings could more tilt towards financials savings and particularly towards equities. That has been largely seen in the last few months where domestic investors have been pumping in more than Rs 10,000 crore to Rs 15,000 crore into equity and mutual funds directly.

What have you made of the banking results so far because there has been a big negative aside of may be an Axis which also sounded reasonably okay. What did you make of the banking results and are you confident on betting money on the private banks right now?

We discussed the effects of the demonetisation and the liquidity crunch and stress that could come through on a short term basis will play out this quarter or next quarter. We need to be watchful of that for some more time. However, Rs 7 lakh crore have new notes have been printed and the currency in circulation is back to about Rs 9.5 lakh crore. The issue of liquidity and lack of cash availability and the resultant delay in repayments would be a thing of the past very soon.

The credit growth should improve into the next fiscal year and with this kind of a backdrop and framework, the banking sector would look definitely interesting. On the larger corporate side, the stress should start to ease.

The big areas of stress are infra, power, steel etc. We have seen a lot of government action to help the sectors plus globally commodity and mineral prices have gone up. That really is giving a lot of cash flows to these companies. So naturally, the stress would get relieved over a next couple of quarters and we see that the large corporate lenders would come back in a significant manner over the next 12 months. More than private, I would probably be more positive on the PSU banks with two years perspective in mind.