We have moved away from high exposure in NBFCs to wholesale banks: A Balasubramanian, Birla Sun Life AMC
Value unlocking in telecom to take a long time unless revenue projections improve, says Balasubramanian.
When it comes to markets , how are you advising your kids?
Kids nowadays want to take decisions on their own and decide what to buy and where to invest. They need very little advice from their parents.
Do you think that the road ahead is veering towards stability or with the elections looming large, is volatility going to be the underlying factor?
There is no doubt that in the last two-three months, the market got impacted by variables like oil price movement, the currency movement in India as well as the global trade war. We also had concerns over NBFCs and liquidity. The worst seems to be getting over now and the global oil prices seem to be stabilising at close to about $70.
A recent study indicates that inventory levels have gone up globally and the kind of fear about oil prices shooting up, seem to have receded. That is a positive development in my view.
Second, the liquidity crisis that we have seen in India and overall in the financial markets over last two-three months, are also getting addressed with the intervention of the government. The government’s timely intervention should help in getting the liquidity back and Reserve Bank of India has also been reasonably active in terms of providing the liquidity in the systems through OMO. with insurance rates not shooting up in the short term means credit is available for the borrowers.
Lastly, the proactive lending by public sector banks had given rise to concerns about PSU banks being very aggressive in terms of their lending. After a very long time, we are seeing corporate lending coming back. Some of the banks which have been focussing on corporate lending, are returning to lending activities. We seem to be at the bottom of the cycle and any reaction that could come with respect to the oil which is one of the biggest factors for India and in turn the relative stability that can come for the currency, will show the participation levels going up for the market.
What is going on in the telecom sector? Moody’s thinking on the lines that Bharti’s debt should be downgraded to junk just tells you that the intensity of competition is going to increase in the telecom sector.
Yes, of course. We have been seeing this trend for the last one-and-a-half, two years but one has to consider the fact that this is one industry that has done a lot of good for the country from the consumers’ point of view. It has increased penetration to every nook and corner of the country. Whether it should be pushed to this kind of level at which we are seeing it today or if some stability will return to the industry in terms of their pricing power as well as consumer benefits.which will lead to longer term sustainability of this business.
There has been a good amount of consolidation and from seven-eight players, it is becoming a three-player sector. From the consumer point of view, competition is always good but that should not come at the cost of their profitability.
One has to look out whether the consolidation starts leading to better balance sheet management and pricing power to ensure longer term survival.
Would you be a buyer in telecom stocks?
If we go deep, definitely there is value. It is a sector which has got huge entry barriers. It needs huge investments and somewhere down the line, the pricing power will return and help the industry get stabilised, reversing the whole trend that was seen in the last three-four years. While there is a deep value in companies like Bharti, what is hurting them is the high level of debt which is neither getting converted into equity and nor getting reduced significantly. The value unlocking will take a lot of time unless revenue projections get better as we move forward.
From a money manager’s point of view, while we do have a close watch on this sector and especially on stocks like Bharti, we do not still have a significant ownership given the headwinds.
The NBFC crisis really destabilised things. Do you think that the baby steps that are being taken could potentially turn the tide for the NBFCs and the issues get gradually ironed out?
We are already seeing the pressure which all the NBFCs have gone through in last two-three months with respect to the liquidity that seems to be coming back. The various representations that have been made by NBFCs and HFC as sectors, both at the ministry level as well as at RBI and the NHB level, have been significant steps that are being taken to ensure that the sector has the liquidity to meet their short-term requirements.
Having said that, we need to accept the fact in the last seven, eight years when the public sector banks were withdrawing from lending activities in the retail sectors, it was the NBFCs who have been increasing the lending growth and reaching out to every nook and corner of the country for meeting the needs of various borrowers.