Corporate profitability must improve if the government is to meet its fiscal deficit target for next year, according to Sudhakar Ramasubramanian, MD, Aditya Birla Money, a brokerage and wealth management firm with 3.5 lakh active clients and daily average turnover of ₹1,700 crore. Excerpts:
Do you think the 3.5 per cent fiscal deficit target set by the government for the next fiscal is credible?
I think we are used to second-guessing the government about the fiscal target, but over the past two years, we’ve seen the finance minister stick to his fiscal deficit number. With the previous governments, we had a problem with credibility and the markets questioned this credibility. I don’t want to approach even this year with a negative intent. Having said that, the government has accounted for a higher direct tax number next year, which is dependent on corporate profitability growing.
For those with a long-term orientation, this is an opportunity to buy. We think private banks, NBFCs will benefit from an interest rate decline. Some commodity users will continue to do better, such as Pidilite and paint companies; pharma will also do better. In consumables, we think Britannia is a good call.
Why would Britannia’s profitability reduce when wheat prices have gone down?
If business performance is not impacted but the stock price is going down, it’s time to buy. We are advising our clients to stay away from PSU banks. Let them settle down, we don’t know how much more struggle there is in this sector. We’re telling clients to let the uncertainty play out and wait till we see some sense of light at the end of the tunnel.
It’s okay to miss the first 5-10 per cent after the stock starts to rally because there’s a very high risk at this level.
We are also staying away from government sectors, from infrastructure a bit, and from oil.
Are investors coming back to direct equity now?
Not yet, the direct equity volumes are down. This country used to see ₹25,000 crore of retail money getting traded every day in 2007-08. Today, this number is at ₹8000-10,000 crore. As a percentage of GDP, that’s a very small number. Of this, the (long-term) investment is very little. There’s not much money coming in. Net inflows into equity have increased but they are not what they should be because the perceived risk of mutual funds and equity is still high.
What’s helping this flow are platforms such as MyUniverse. Within a year after launching, we’ve become the seventh largest distributor of SIPs. People are interested in investing but they have to overcome the challenges of discovery, usability/ design and delivery.
That’s where we’re helping them. We assess risks and tell them how to build a portfolio.