MUTUAL FUNDS

Boosting financial savings and diverting them away from non-productive physical assets like gold will help augment the growth rate <
22-Jan-14   17:42 Hrs IST

Mr. Anand Radhakrishnan
In an interview with Capital Market, Mr. Anand Radhakrishnan, Head of Equities & Portfolio Manager, Franklin Templeton Investments - India, said, We are seeing early signs of the Indian economy stabilizing and believe a gradual (and uneven) recovery will take shape in 2014-15.

Excerpts:

Where do see the global economy heading?

The global economy will remain in adjustment phase and the divergent growth trends are likely to persist in 2014.The policy priorities for EM and developed economies will be different and a lot depends on US, but policymakers appear to be cognizant of the cross-border spill overs and hence, any liquidity tightening will be done in a careful manner. From a medium to long term perspective, developed economies need to reduce their large deficits without impacting growth momentum.

What is your outlook for 2014?

For India, 2014 will witness heightened focus on politics given the national elections. The results of the recent state elections might help in shifting focus away from welfare-politics to development focused politics. Irrespective of the nature of the ruling parties (coalition), we expect to see an improved policy environment.

We believe that focus needs to be on ensuring adequate reforms to lay the foundation for the next growth phase. Inflation needs to be addressed holistically to enable a higher growth rate and this would require addressing continued supply-side bottlenecks, subsidies and government intervention in pricing of food grains. Boosting financial savings and diverting them away from non-productive physical assets like gold will help augment the growth rate.

We are seeing early signs of the Indian economy stabilizing and believe a gradual (and uneven) recovery will take shape in 2014-15, helped initially by positive contribution from exports and agriculture sectors. Potential headwinds include rising inflation, further monetary tightening by the central bank and government spending cuts to achieve fiscal deficit targets.

Despite the moderation in growth trends, we believe India's economic expansion will be ahead of most peers and as has been the case in the past, we expect markets to rally ahead of an improvement in economic fundamentals. From a medium to long term perspective, consumption and investment remain the core themes. A strong middle class along with the need to boost infrastructure will be the drivers, and companies that are positioned to take advantage of them will be wealth creators over the coming decades. While we are not betting big on exports there are some positives emerging in that space as well.

Kindly share your views on the proposed NPA resolution programme.

RBI's discussion paper on non-performing assets (NPA) management puts forth a range of measures for early recognition of problem assets and to tighten asset recovery process. Some of the key aspects of the proposed NPA resolution programme are creation of a special mention account category for accounts with over 30-day and 60-day payment delays and certain other qualitative factors such as delays in stock statements, etc. For larger loans, the central bank has suggested setting up a joint lenders forum to start negotiating with the borrower on early signs of slippage. Banks can also categorize certain borrowers as non-co-operative and this can trigger a system wide increase in provisioning. Lastly, the paper also has some suggestions for the government and judiciary system so as to improvise the asset recovery process.

Overall the paper, as it stands, is a step in the right direction and can help banks deal with NPAs in a structured manner. At this point, problem assets are not at alarming levels and mostly concentrated in the books of public sector banks. Such a mechanism will help expedite resolution and improvise the bargaining position of banks.

What would be your advice to investors for the forthcoming year?

Investors need to look beyond the short term uncertainty to participate in the long term growth story as the cycle turns.

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