Let us understand your worldview. Exactly one week ago, concerns for the stock markets were abundant – China, US macro data and the crisis in the Middle East. At least for now, two of those three concerns have taken a back seat.
Venugopal Garre: We need to be a bit more concerned with India’s drivers rather than what has happened abroad, in my opinion. So if you think about it, my external concern is not very much about China, because I think a recovery in China, whatever the reasons, is actually positive for India, not negative for India, from my point of view. view. We can discuss that, but that was my point.
Coming to the Middle East, there are broader concerns about what could happen to crude oil and commodities in general, that’s something we have to be careful about, because it’s going to be very volatile and it could shape up very differently from what one would like. to expect or expect this to happen in the next two months.
So we still have to watch this aspect quite closely. But I’ll bring us back to the broader view of India itself, I think we’re going through a potential fatigue phase in the economy, as I said, and that’s something that’s going to affect earnings as well. So, we need to watch this more as a challenge to cap Indian equity returns than anything else.So let’s talk about India since you flagged it. You wrote about it. What are the indicators that tell you things are going from growth to slowing or growth has stagnated? Give us three examples or indicators that give you the impression that things are ending now.
Venugopal Garre: So very top down. I would just point out that since the data is generally on the macro front, it’s pretty closely watched. If you were to look at just the two main drivers or two to three main drivers for the economy, one was government investment. Government investment data clearly suggests a fairly significant slowdown over the past couple of months, that data is of course available. Yes, there would be some room for a catch-up in the second half, but then on a full-year basis, I think you’re still missing those numbers, because you can’t catch up on capex if you’ve missed spending for a few months, so it is a major factor that becomes negative.
The second aspect is in terms of consumption, drivers who have focused mostly on upper and premium urban consumption, are starting to see a fatigue. Very clearly, it can be seen that premium two-wheeler sales are flattening out for the year. SUV sales have begun to moderate from last year’s pace, while affordability has yet to rebound. At the same time, we can see generic retail sales based on data from the Retail Association and others also starting to slow quite a bit in recent months.
What that means is that as we head into the holiday season, we’re going to see a lot of discounts for companies and products come and go to make sure you get your volume boost, and of course that’s not necessarily great for the edges.
And more importantly, if you then build in something that’s derived factors, whether it’s things like IIPs, production levels, and things like cement demand, you generally see some degree of fatigue, which is more derived in nature regarding the request. So these eventually have to be reflected in the numbers, even if they are episodic and even if there are some intermediate kinds of fatigue factors.While PV sales are now declining, two-wheeler sales are rebounding. Why do we get such a split image in cars, which is always the biggest and best indicator of high frequency. At the same time last year, rural India was under stress, two-wheelers were down. Now two wheelers are back and car or PV sales are down. How should you read this auto data as an indicator of consumer demand?
Venugopal Garre: Unfortunately, the automatic data is not synchronous at this time, partly due to the impact of COVID in terms of what recovered first and what started to recover later. Now, if you were to broadly characterize this, passenger vehicles reached higher absolute volumes than pre-Covid levels at the beginning of last year. And after that, some momentum continued, but then we started to see fatigue across the board in passenger vehicle sales, which is so top, which has been a big factor over the last three years. Remember, there is no affordable recovery.
That tells you that the top 40 million households that were essentially the engines of the economy are not necessarily seeing that kind of boost, that’s part of the story. The second thing is that if you look at two-wheelers in general, most of the demand you see in two-wheelers is stacked in the middle of the vehicle range.
As for the top end, premium, which we call larger than 250cc, it’s actually flat year-round, and it’s actually been pretty decent for the last couple of years. So in theory, even just knowing what’s going on in two-wheelers, the top end isn’t necessarily great and actually sees moderate boost. We are yet to see any major signs of affordability recovery.
So it essentially means almost similar to PV in terms of thinking, in terms of economic impact. CVs are just waiting and watching what will happen in the next few quarters, things will slow down materially from here. First, anyway, CVs have peaked and are approaching flat numbers, but then what we’re hearing on the ground from various fleet operators and others is going to be very bad for the next few quarters, at least. So you’ll see the momentum moderate even more from here.
So do you see an opportunity or a revival in demand and investment? I think there are some opportunities in the energy sector, according to you, that look promising.
Venugopal Garre: Yes, in a very medium-term approach, I was of the view that government spending as well as transportation spending had peaked. It is a reality that is very difficult to understand, but it is happening and will happen and will be visible in the next few years as well. Energy capex is just at the beginning, which means it’s going to be volatile, but if you were to really position yourself to play the momentum in the energy sector, because of the need, both in transportation and around renewable energy, keep looking for opportunities there. It’s a three-four year cycle and it just started last year.
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