Mr. Pradeep Gokhale
Senior Fund Manager, Tata Asset Management Limited
With over 25 years of experience, Pradeep Gokhale serves as the Senior Fund Manager at Tata Asset Management Limited. Pradeep joined Tata Asset Management in September 2004 in investment department and was head of research prior to becoming a fund manager. Prior to joining Tata Asset Management, he worked for 9 years with Credit Analysis and Research Ltd (CARE), where he was the head of financial sector ratings. Pradeep started his career as a finance executive with reputed companies like Lubrizol India, Tata International and Bombay Dyeing. Pradeep is a Chartered Accountant and a Chartered Financial Analyst. He also holds a Bachelor's degree in Commerce.
Q. A lot of debate has been happening all across media on economic situation of the country. While some are predicting a multi-year slow-down in GDP growth, other have been pointing the recent slump as a temporary phenomenon set to change soon. What is your current assessment of our economic standing today?
Answer: Economic growth has slowed down in India, as is reflected in RBI reducing its estimate of GDP growth in the recent credit policy. Two key reasons for the slowdown are - firstly the strong growth boost India received due to sharp fall in oil prices in FY15 has now receded as oil prices have stabilized in the USD 45-55 range. Further, two key domestic events viz. demonetization and introduction of GST have resulted in short term disruptions for many businesses, thereby impacting growth. However, this slowdown, in our opinion, is not structural in nature. Cash availability has now significantly improved post demonetization and as the initial teething troubles related to GST are sorted out, growth should come back. We already see signs of pick up in the early indicators such as PMI for both manufacturing and services. CV and Passenger vehicle sales, IIP data etc.
Q. How long do you think the economy will take to climb back to 7 percent plus growth rates? What key factors and measures you believe would be necessary for same?
Answer: We feel economic growth should recover strongly over the next 18 months. The three growth engines for the economy are consumption, exports and investments. Firstly, consumption growth should start improving as the disruptions caused by demonetization and GST fade away. Also, as noted by IMF recently, we have seen signs of growth improvement across major economies in the world such as US, Europe, China and Japan after many years of weak growth. This should translate into better export growth. Currently investment growth is primarily coming from public sector investments. Over the next two years, if we see resolution of the large NPA cases through the NCLT or other mechanisms, then private sector capex should start picking up.
Q. Questions have been raised on how GST has been implemented. Can you share some general feedback and experience from the industries, especially the MSMEs?
Answer:When a complex tax system involving both manufacturing and services sector and both Central Government and State Government taxes is reformed through a unified Nationwide tax system such as the GST, there are bound to be initial teething troubles. The impact is relatively larger on the MSME sector as they do not have enough organizational bandwidth. However, this is a transient phase till the businesses will adjust to the new system. The Government is also aware of the issues and recently has announced measures to help this process.
Q. Job creation has been one of the toughest challenges for this government. Apart from the impact of policy decisions, automation and robotics are the new concerns. What sense do you get on this front? Is automation, robotics, AI something that looks to be picking up in industries with potential to replace at labour force?
Answer: Job creation and economic growth is very interlinked. In the last three years, India’s economic growth has come mainly from domestic consumption and public sector capex. As stated earlier, with global growth outlook improving, exports growth and later private investments should start to pick up. This will lead to better job creation. MSME sector plays a key role in job creation and this sector is just coming out the disruptions caused by demonetization and GST. This also should lead to better job creation.
As regards impact of new technologies on job creation, we have seen many times in the past that any time a new technology is introduced, fears of job losses mount. This happened when automobiles replace horse carriages. However, we have seen that new technologies create as many or even more new jobs than the jobs lost due to that technology. We feel this time it won’t be any different.
Q. The markets seem to be steadily perched near the all time highs. What is your view of the current valuations prevailing in the markets?
Answer: In the last three years, a major part of market returns has come from P/E rerating and less from earnings growth. Current market valuations are higher than long term averages, but by no means excessive. Current valuations reflect the strong improvement in India’s macro economic fundamentals in terms of lower inflation, lower fiscal and current account deficits and also low cost of capital, which is a global phenomena. Market expects earnings to improve over the next two years and going forward, earnings improvement would be a key component of market returns.
Q. What would be your advice to an investor looking for an equity exposure at present levels. What asset allocation would you suggest for a person with 5 years and 10 years of investment horizon.
Answer: Strong macro position, continueing reforms and long-term structural drivers like demographic advantage, low household debt, limited penetration across different consumer categories, increased potential for financial savings and urbanization, makes India a compelling equity story from medium to long term perspective. Hence investors with a long term view should continue to invest the equity markets. As regards asset allocation, apart from time horizon, risk appetite of the investor also plays a key role. At current market valuations, we feel investors should allocate 40% to diversified funds and 30% each in large cap fund and mid cap funds. Investors with higher risk appetite may look at higher allocation to mid caps and sectoral funds.
Disclaimer: The views expressed are of Tata Asset Management Ltd. and are in no way trying to predict the markets or to time them. The views expressed are for information purpose only and do not construe to be any investment, legal or taxation advice. Any action taken by you on the basis of the information contained herein is your responsibility alone and Tata Asset Management will not be liable in any manner for the consequences of such action taken by you. Please consult your Financial/Investment Adviser before investing. The views expressed may not reflect in the scheme portfolios of Tata Mutual Fund.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.