Uday Kotak webinar takeaways 27 May 2020

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Uday Kotak webinar takeaways

27 May 2020



General comments

Lockdown has multiplier effects
Heading out of it is far difficult (Abhimanyu Chakra)
Covid is here for a while


Many Businesses impacted

e.g hotel

low occupancy, fixed cost
there will be series of negotiation: lessor/lessee, vendor/buyer, employer/employee
Industries impacted?

Transport, Hotel, Airlines, Comm RE
Employee level e.g. Drivers etc
Will we forget the learning of this experience and move back to earlier behaviour? Don’t think so



Sector Beneficiaries?

Food, Essential, Telecom, Pharma


Govt help?

Package is more of supply side
Many people say not enough done on demand side
But India cannot print like US
Even with this limited stimulus, fiscal deficit will be 12% (state + center combined)
India needs to take care of positioning too, not just rating. Cannot afford to be called a fragile country..
Don’t have the luxury of developed markets


Macro?

11.5-12% Fisc Def. 12% FD is something markets can absorb
CA is under control. Likely 0 deficit. Plus have 500bn$ reserves
External account position is better


Banking sector?

100L cr total book
Has 11-12Lcr capital
If assume 4-5% loss = 4-5L cr loss = 40% of banking capital
This much capital will have to be reinstated
Significant capital will be needed to bear the shock
On way to get some capital: Banks are also supposed to carry Govt bonds. MTM of bonds goes up and helps in recap


MCLR will come down

Will see faster cuts in coming months


Financial sector continues to be fragile

PSU. SBI will have to take disproportionate load
PSU merger = The process is still on
PSU will have their own challenges
Pvt sector banks? A set of healthy banks. Will take significant growth and opportunity
NBFC?
In general, 4 challenges
Very large exposure to RE + lending against land
Large exposure to unsecured consumer. In all govt packages, no protection to unsecured consumer, who maybe a salaried employee. Sal cut/ job cut a concern
Seen governance issues. E.g. ILFS, Dewan, Yes. Maybe some more in line
Liabilities side is dependent on wholesale funding
4000 NBFCs in late 1990s. Less than 100 survived
e.g. SUUTI had to be created. Issues with IFCI, IDBI


Negative GDP growth not factored in yet

Economists est. -5% GDP growth i.e. 200Lcr per year growth will come to 190Lcr
What if its more than -5% .. 100 becoming 95 or 90, is serious issue
Will there be a fundamental change in customer behaviour?
People sitting at home. Postponing non-essential purchase for a longer period of time?
Read some article on 90% economy? That is redefining our base from 100 to 90


Significant change in working style

Will have to readjust
WFH will be a reality
Uday Kotak = very comfortable working from home
Am actually working harder. Putting in more hours.
Productivity has gone up
Not a bad thing
At most will go to office 1/3 of time
This is so much more efficient
People will recalibrate. 2-4 day work at office/week .. will happen
Virtual cons? Human relationship wont build easily. If have early relations then no problem. New relations will be an issue
Will not see a world where only virtual. Physical will have a meaning but lower in frequency
BC Before Corona. DC During Corona. AC After Corona
AC word = More virtual. Will change demand for RE. More conscious of hygiene.
e.g. Birthday cake and candles. Generally blow the candle. This behaviour will change. Small changes will keep on happening
Indian traditions in general are scientific and well thought


Lockdown extension?

India will have to open up
Life, livelihood and growth .. all need to be considered
Why should younger people not go out to work? Old and young division – will have to find some solution
Trains, bus opening up.. What happens if another lockdown? Don’t know
Opportunity to build India for new world. Can reposition itself


Liability?

Kotak seeing a surge in deposits coming in
Challenge is where to deploy?
Reverse repo .. many banks are deploying there
More of a Liquidity trap situation
2 reasons why so much liquidity. 1) Economic slowdown and less demand. 2) Many of companies .. challenges to their models and so risky to lend them
Enough liquidity for companies that do not have solvency issues ..


Disconnect between markets and economy?

Stock markets are digital, working currently
Interest rates globally o/-ve.  US 0%. Eur -ve. Japan -ve. All to print more
Indian rates down too
Money is flowing .. some is going to stock markets now
Things eventually will revert to mean


Future for financials?

Need well capitalised financial sector
Financial services will be more tech/digital driven
Good governance needed
There have been lot of shortcuts taken earlier. Some going through investigation now
6 parts of Governance:

Mgmt of financial insti. = Need credible ones
Need proper boards. Need to ask tough Qs
Auditors, should be responsible
Rating agencies
Promoters and insti shareholders
Regulators


Will see a lot more consolidation in every sector

E.g. Telecom: from 13 to 3
Same for financials. Will see that in months to couple of years
Big will become bigger


5tn$ economy, from where?

Technology, digital story has to play
Larger but flexible companies. Faster decisions


What about Cash burn economy?

People are trying to look at more visibility
Cash burn will have heart burn
Need firepower for 12-18 months vs 6 months which many might have at best
Not everybody will get money
Amazon/Flipkart going good
RIL has done a good job post burning a lot. Able to raise money in such tough times


Real estate?

Commercial RE Rentals should drop 25% for office, 40-50% drop for malls


Currency?

If India has no rating downgrade issue then expecting basic 3-4% depreciation yoy
Rupee reasonable depreciation has happened
However, cannot predict much. Macro changes fast
Migrant issue

Cost of living in rural is quite low
Many migrants moved out. Higher cost of living and poor quality
Plus uncertainty of livelihood and so no choice
There is Mnerga, DBT, etc.  Breakeven is lower. More comfort in village vs hostile urban
Migrant: I am happier in country side vs lousy urban city life
Employers also have some responsibility; should have checked on their living conditions earlier vs just looking at lower pay
These instances will push govt in all countries to Universal Basic income