Like in 1991, a big crisis can be turned into a big opportunity: Navneet Munot

The gains from formalisation, digitalisation, financialisation will not be leveraged fully if we do not focus on the next generation financial sector reforms, says the Chief Investment Officer, SBI Mutual Fund.

The announcements made by the prime minister yesterday were very impressive. As a money manager, what would you watch out for apart from the intention and the big headline?
The economy needs a lot of capital and a lot of confidence. He has injected huge amounts of confidence among all stakeholders and promised a lot of capital. A part of it has already been injected by the RBI. One word, if I can use it, is that we have to ensure that the policymakers on the monetary side as well as the fiscal side ensure the multiplier effect.

While RBI has injected a huge amount of liquidity, there is still a disconnect between the macro and micro liquidity. How do we percolate it down to all parts of the economy which needs money today? Similarly on the fiscal side, since resources are limited, we have to take care of various stakeholders to ensure that every rupee getting spent has a huge multiplier effect in the short as well as long run. That is what we would be looking at.

He touched on agriculture to cottage industries to SMEs to MSMEs when he talked about liquidity. I take it as financial sector reforms. When he talks about land and labour, I take it as factor market reforms and when he talks about the fourth L -- law -- I take it as broader administrative, judicial and regulatory reforms. It is the totality of that package that we have to see over the next several days.


5% of the package is already at play from RBI and from the schemes earlier announced by the finance minister. A lot of the package would also contain credit guarantee schemes or sovereign guarantees. Some would argue that the cash outgo may not be very large. This package will not have an immediate impact on the economy and will start reflecting 12-18 months down the line.
But is that not true of most of the other economies that have announced large stimulus? The good part has actually gone in guaranteeing the debt of the people who would not be able to pay the debt in the near term be it individuals or small businesses and in some countries even larger businesses.

In India, EPFO has been doing a very good job in terms of supporting the subscribers in the organised sector, I am sure a broader package will come for the labour in the unorganised sector. My view is that and we have seen in the previous crisis of 1991 also when we had such a big crisis on the external side as well as on the economic side. It was the confidence that got injected along with the broader set of reforms which led to one of the biggest bull markets that we have seen in our lifetime.

I am not saying that in next two days we are going to see a similar kind of rally because the health crisis has various other dimensions and this is a broader global crisis, but at the same time, I think we must keep faith on one thing that the potential in India is large for us to grow from this base. Where he talked about demography and demand, I would add two more words to it. The world where we are in today looking from a geopolitical perspective and being a high quality liberal democracy, the fourth D to me is the most critical for India today more than in 91. It is digitalisation and that can really transform the country.

You are absolutely right. The resources are limited. Along with the broader reform package, the private sector has to play its role rightly. If the Prime Minister is showing confidence in giving a little bit of capital, all of us need to have that courage, that conviction and show our character that we can really present ourselves to the world as the next big idea.

But do you think that this announcement by the PM can definitely put a floor to the market and could it be around the 9000, 9200 odd level?
In the very short run my answer would be yes. But there is still a lot of uncertainty pertaining to the health crisis. It will take quite some time for us to get to a complete cure in the form of a vaccine and we will have to see may economy will kind of start stop a little bit, start then stop a little bit, we will have to go through that, we also have to keep a watch on what happens in the rest of the world.

While there is an opportunity for India. we have to keep in mind the global background. The world economy will see one of the worst recessions in its history this year and that will also have some repercussions in the near term growth outlook for India.

What investors need to keep in mind is if we can stomach this volatility over the next few months, while there would be some bit of positivity which has got unleashed thanks to what the PM mentioned yesterday and I sincerely hope all the other policymakers will follow suit over the next few days in announcing what he intended yesterday, There is a possibility that we do not fall as much as in March in case the global markets again go in that direction.

Where do you see the fastest recovery coming in? Is it going to be the beaten down pockets or is it going to be the stronger hands which will continue to get stronger, the usual telecom, pharmaceutical names continue to see buying?
We have to see who could be the biggest beneficiary over a long period of time from some of these announcements that are likely to come. If India was to be very vocal for local as the PM said, then who are the players who can benefit from it?

The global policy discourse is towards the healthcare sector and how India can use that as a Y2K moment. Could it also be for some of the other sectors particularly on the bottom of the pyramid? In consumption, it is going to be in a variety of stocks. Companies that not only have the resilience to survive through this crisis but prepare themselves well and who have the ability in their balance sheet, in their execution ability and who also invest right in innovation and technology are the sectors and stocks you need to bet upon.

There are certain industries for whom it is going to be critical to hear of some relief coming in. How much conviction do you have that the package will be an all-around boost? Is there scope for any disappointment?
The mood has shifted from focussing on survival only to revival also. I am sure everybody is very hopeful today. The Prime Minister has really injected a huge amount of confidence and optimism in all of us. Of course, we have to prepare for the reality which is there in the very near term in terms of the health crisis and in terms of the impact on the several businesses it will have. There may be some longer term repercussions given the implications in the rest of the world.

If we go back in history, this could be that moment like 1991 where a very big crisis got converted into a very big opportunity. We have already seen in the last few years some of the structural reforms like GST, IBC and transparent allocation of resources. On top of that, we can build on financial sector reforms, broader administrative judicial regulatory reforms and the factor market reforms that everybody has been waiting for.

Over the last three or four days, we have heard several of the state governments coming out with some reforms on the land and labour front. It is very critical we focus on federal co-operation. The federal structure where the centre provides a policy direction but the execution has to happen at the central as well as local levels and everybody rises to the opportunity.

There is a healthy competition among the states. If everybody says that I am going to be more liberal, I am going to be more business friendly, I want to attract a larger pie of the FDI flows that can come into India for the larger investments, then only we will be able to reap the full benefit of it.

Financial sector is the life blood of the economy. Credit for agriculture, for the SMEs, for handloom or for the MSMEs is very critical. The gains from formalisation, digitalisation, financialisation will not be leveraged fully if we do not focus on the next generation financial sector reforms and if we do not focus on ensuring that liquidity reaches where it is needed today.