Strong shift of manufacturing into India is going to happen in next 5 years: S Krishna Kumar

We should look at the manufacturing sector which will see some uptick. The long term consumer discretionary dynamic will start to take over from here, says CIO - Equity & Executive Vice President, Sundaram AMC.

When we are talking about looking ahead, what are you pricing in? What are the opportunities that you are focussing on in the market currently?

The market is building in a lot of optimism at this point in time in terms of the economic recovery and we are building in a lot of growth into FY22 and FY23 which is something that we need to be a little cautious on at this point in time.

A lot rides on what the government and RBI will do because on the ground, there is still some amount of stress across different loan products. We need to see some resolution through a one time restructuring or scheme that we believe could provide a tailwind for the next leg of markets. The financial institutions are getting recapitalised very well, given the appetite and liquidity that is available at this point in time. So that is removing a baseline risk in terms of institutions getting stressed given the good capital availability.

We are building in a lot of confidence into the way the government is approaching the reforms. We think that this strong shift of manufacturing into India is finally going to happen in the next five years. We have been waiting for it for quite some time and we are building in a lot of optimism on the manufacturing sectors of the Indian economy both from a local and a global perspective. A lot of FDI is flowing in. A lot of MNCs are coming into the country to capture the opportunity that is definitely going to play out.

The PSU divestment is a big step in the right direction and will help the government to address the fiscal situation and provide thrust to the productivity and the growth in the economy. So a lot rides on the government’s intent and will to make this happen along with the support of the RBI.

We have seen quite a substantial amount of fund infusion or fund raising by major banks who are preparing for any kind of vulnerability over the next few months. Some high level meetings are slated including one today with the prime minister and heads of banks. What is your assessment of the financials currently?

Clearly there is a lot of stress on the ground but it is kind of ebbing as we see from improvement in the moratorium numbers reported by various banks and NBFCs in the June quarter, compared to April and that is a good sign.

As more economic activity picks up, the ability to repay the loans and the EMIs is going up. so collection efficiency has been reported to be getting a lot more significantly higher closer to normal. So with the economy normalising, in the next six months the stress in the system should be a lot lower than what we see today.

The capital raise done by all the banks is going to be a big differentiator this time around because the banks and NBFCs are raising capital ahead of time and preparing the buffer for provisioning for growth etc. These are positives but given the huge amount of paper that is coming through, we do not see a significant outperformance of the banking sector at this point in time. Banks will be an enabler for the economic growth in the environment and we should play it through the various industries which are going to be beneficiaries of the low interest rate and a good credit growth environment that we will see for the next three years.

So that is why I again reiterate that we should look at the manufacturing sector which will see some uptick along with the fact that the long term consumer discretionary dynamic will start to takeover from here because 70% of the consumer discretionary essentially is driven by the top 20% households in terms of per capita income.