The current NBFC (non-banking financial companies) crisis needs to be resolved on a priority basis to revive the corporate earnings growth and the government needs to play a major role to spur demand in the economy, according to Sandip Raichura, CEO of Retail and Distribution at Prabhudas Lilladher. The recent correction in the stock market is not much of a concern and the valuations above 11,000 level look reasonably well, Sandip Raichura told Financial Express Online in an interview.
"We all had anticipated that sometime around the end of Q4 of last year, over the first quarter of the current fiscal we would start to see the rebound in the earnings cycle because of the BJP coming to power and budget. All of that hasn't happened. Especially automobile and infrastructure sector which are the major employers couldn't add any value but actually sitting at multi-year depression cycle," Sandip Raichura said.
The interest rate cut by the Reserve Bank of India is not enough as the demand from the corporate sector is needed. The supply of credit from public sector banks and private sector banks can only kick off once the NBFC crisis is fixed. The government has already announced a rescue package for the NBFCs in the budget 2019-20, Raichura added.
Finance Minister Nirmala Sitharman in her maiden budget 2019-20 announced an easing of liquidity flows for NBFCs with a one-time, six-month credit guarantee for the purchase of assets of high-rated NBFCs up to Rs 1 lakh crore for first loss of up to 10 per cent. RBI governor Shaktikanta Das also said the central bank would not let any NBFC collapse and it is monitoring 50-odd large NBFCs, including HFCs or housing finance companies.
Besides NBFCs crisis, US-China trade dispute, weak monsoon and global growth concerns are also the major factors weighing on corporate earnings. The government needs to loosen its purse strings to kick start the infrastructure projects. In a bid to improve sentiment across the country the government can also sound out with rating agencies for better rating and bring back the consumption demand, according to Sandip Raichura.
So far, the foreign portfolio investors or FPIs have been net sellers at Rs 9,172 crores. The FIIs have been withdrawing from India since the government announced on Jul 5 additional surcharge on individuals having an annual income of at least Rs 2 crore which also applies to FPIs registered as trusts in India. The FPIs have demanded clarification from the finance minister with regard to tax implications and the government is likely to come out with some measures to safeguard FPIs interest. According to Sandip Raichura, the weakening of the US dollar will also help in bringing more foreign funds into the country.