Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now

You can switch off notifications anytime using browser settings.

Expert Views

Stock Analysis, IPO, Mutual Funds, Bonds & More

Not only earnings, market is also driven by optimism: A Balasubramanian, Aditya Birla Sun Life AMC

I see more positive news flows keeping the overall sentiment alive, says Balasubramanian.

ET Now|
Mar 22, 2019, 11.54 AM IST
A Balasubramanian, Aditya Birla Sun Life AMC-1200
The lending markets will begin to pick up as most of the NBFCs will return to normalcy as we move into the first quarter of next financial year, said A Balasubramanian, CEO, Aditya Birla Sun Life AMC, in an interview with ETNOW.

Edited excerpts:

It was heartening to see how the mutual funds came together and averted a near-term panic in some of the key Zee stocks. I guess nobody has complimented you for that...

Of course, it was a collective effort. Not just myself or my team, all lenders came together. We came to a conclusion on what to do whenever such occasions arise, when you lend money to a good company and they go through some bit of liquidity crunch. The brainstorming and the debate was done together by all the lenders or investors -- from mutual funds as well as the NBFCs. We realised the whole issue need to get supported in order to ensure that the money is safe from the investors’ point of view, lenders’ point of view and at the same time, a good company also can be helped to survive provided everybody works together.

Fortunately, everybody came together and understood the principle on which the whole issue can be resolved. I am quite happy to say that it did pay off more on the short term. It was estimated that the effort that has been put in by the company will keep all the lenders and investors happy as and when the final event occurs.

If the underlying concerns are so easy to understand and if everybody was of the view in February markets will be volatile and markets will not do anything special, what explains the 1,000 point rally in the Nifty?

There are three-four things. Starting from September, post IL&FS crisis, it was the issue around NBFCs which continued till about November and December. Since January, liquidity is coming back to normal, the rates have fallen a bit -- especially the short-term rates. Even the fear of failure of NBFCs has been gradually lessening and finally the expected election results, post Pulwama attack, has improved the probability of continuation of the government with reasonably good number of seats.

The confidence is coming back. Being part of the market, we have gone through pain every now and then. It does not last long. Generally, it lasts for about five to six months and the market is driven by not just earnings, it is also driven by optimism and that is why the PE multiple increases quite substantially. For a greater part of last year, it was all about largecap names, Sensex companies, Nifty companies. The broader market of midcaps and smallcaps were really hammered.

The confidence now seems to be coming back on the basis of an expected favourable political outcome as the country goes for general election in May. Most of the NBFCs in my view will return to normalcy as we move into the first quarter of next financial year. Once that happens, the lending markets begin to pick up.

They have been playing a very big role in ensuring that penetration happens in the country and money is available to every segment of the market right from SMEs to the home-loan takers and therefore the contribution to the economy as a whole cannot be ignored at any cost. We need more larger players to ensure that the economy maintains 7 to 7.5% growth with the lending market continuing to remain robust.

The recent RBI action has been on keeping the interest rates low and liquidities better. The currency market is coming along quite nicely and forward premiums are coming down. Therefore as we get into the financial year, a lot of optimism should come back with the real outcome on election going to be more in favour of stability.

Will you also be lending to NBFCs and mutual funds? Is there something you are taking slowly? What are the thoughts on that front?

Our overall exposure to NBFCs and HFCs put together is close to about 35% of the portfolio in fixed income schemes. For a brief period, we were quite cautious. In last two-three months, we have been selectively increasing exposure to and at the end of day one cannot ignore the portfolio yield and the loss on the portfolio return.

At the same time one needs to maintain some kind of sanctity on total exposure that we normally take in any other single sector, single group and single segment of the market. This is the risk control mechanism that we are keeping in and within this overall operating framework, we have been having the exposures to the same level as last year that we have seen.

What is the view on the telecom sector as a whole?

Telecom is part of the services sector which contributes about 50-53% of the GDP growth. The service sectors are largely coming from financial services sector and second is the telecom; third is the airline industry and then comes the hospitality industry. That is the way the Indian economy has been shaping up for the last almost 10-12 years.

Having seen such a large contribution coming from the sector, one obvious question that comes to mind is and telecom sector being a sector which has touched the entire population, and which has been doing a great value addition to every consumer in the country.

Therefore the question to ask is especially at a time when the industry is moving towards consolidation and reducing from seven, eight players now to about three players who have the responsibility of not only providing the best service possible to the consumers, but also of putting in capital to ensure that they remain competitive in the marketplace to provide the best service possible.

At the end of the day, all these services have to be paid at a reasonable price from the consumer point of view. Every consumer has to pay whatever the service they get, therefore making this industry more profitable. That should be one of the most important factor for sustainability of the sector as well as the consumer to get continuous better experience.

We are quite confident that the current consolidation process that is coming in the telecom sector would make actually the telecom sector to consist of three large players. Each one of them will have one-third of the population or the consumers and given the fact that each of them are large players and the commitment to build this business in the long term is very high. we will probably see the current consolidation will lead to a bigger outcome for the entire telecom sector space. Competition, of course, is bound to be there. Even competition at the end of the day will realise at some point of time, down the line. how much capital can be burned at the cost of profit and once that sets in, we will probably see the whole sector getting benefited.

What is happening in aviation is a clear example of what is happening in telecom. You have a situation of market share changes because of Reliance Jio entry and now it is highly unlikely that there would be further price haemorrhages because one part is sustainability and second part is profitability?

Yes, I agree with you. We have seen in the past that many players who are part of the airline industry got consolidated as time progressed and we are seeing a similar situation again currently. Having said that, one should also look at the way things-- the bankers, State Bank of India who is the single largest lender along with other banks to the airline industry, especially Jet Airways. I am taking the name because it is now currently in the news at the same time the way the restructuring has been done with NIF and DI investments coming to their and making some kind of investments in the same company which clearly shows that one, the industry is extremely important from the normal consumer point of view and at the same time, having four, five players is good from the competition perspective as well as from the consumer perspective.

At the same time, one cannot afford to have a loss-making proposition, especially when the industry plays a very important key role in providing not just the best possible service including the infrastructure, the convenience that is being provided also cannot be ignored. Having to operate the business at as low a cost as possible as well as at loss, which is what the airline industry also will realise given the fact that despite being one of the most respected airlines in the country, Jet has been pushed to having lost market share because it has not been profitable. This will probably make the industry also to consolidate and come out the winner. I am very confident that given the fact the lenders have taken charge and working with the management in consultation with the government I am sure something will come out that will make it a win-win situation for both the lenders, operators as well as for the country as a whole.

Are we at the peak of good news and is that the biggest risk for the market? A little bit of uptick in crude, some indication on the trade front, a complete non-market friendly election verdict are potential risks that could peg us down substantially.

We have to look at the new normal way of running the business, A lot of things have been an obstacle for the market, for the economy as a whole for last two, two-and-a half years. Some of them have come because of global development and some of them came because of our own action putting restriction on ourselves.

Post election, some of those things which are acting as obstacles for broad economic growth may get unwound. We will probably see an unwinding of some of the things which were coming in the way of momentum. At this point of time, nobody is expecting such unwinding to happen. Second, some of the powerful themes that we have set out as part of the reforms like GST, probably post election and once we roll out the budget in June, will be in high focus both from the government as well as the various bodies.

All the efforts will go in making some of the recent efforts to become successful and create a scale and so that the economy improves. Some of them actually are not getting discounted and some of them are not even being expected. Therefore, we will see a lot of unexpected things which will keep coming in to keep the overall momentum going forward. While your point is right, I see more positive news flows keeping up the overall sentiment alive.

Also Read

There is not enough good news to lift market sentiment: A Balasubramanian

Beyond banking, there are opportunities in select sectors: A Balasubramanian, ABSL AMC

Sebi regulations to push up borrowing costs in some sectors: A Balasubramanian, Aditya Birla Sun Life AMC

Allocate more to mid, smallcaps: A Balasubramanian, Aditya Birla Sun Life AMC

Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.

Other useful Links

Follow us on

Download et app

Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service