Mutual Funds

‘We are witnessing clear signs of revival in rural consumption’

Lokeshwarri SK | Updated on January 28, 2020 Published on January 28, 2020

Gopal Agrawal, Head of Macro Strategy and SVP Investments – Equities, DSP Mutual Fund   -  Bijoy Ghosh

Worst of revenue decline on an annual basis is behind us: Agrawal of DSP MF

India Inc has had it rather rough for the last few years with headwinds from domestic and global factors. Gopal Agrawal, Head of Macro Strategy and SVP Investments – Equities, DSP Mutual Fund, shared his views on the ongoing slowdown, the Budget and the market view for 2020 in an e-mail interview with BusinessLine. Excerpts:

Corporate profits received a boost in the September 2019 quarter due to the corporate tax rate cut, but revenue sagged. With inflation moving lower, revenue could fall further. When and how do you see demand reviving to help the top-lines?

I strongly believe the worst of revenue decline on an annual basis is behind us. Reflation of agricultural and industrial commodities due to the signing of phase-1 of the US-China trade deal, coupled with the government’s measures to boost demand and credit in the system, would help revive top-line growth.

With the Union Budget round the corner, what would equity investors like to see in the Budget?

Investors are looking for some innovative measures in the Budget that could boost infrastructure investment, consumer demand and the housing sector while maintaining the fiscal deficit at sub 3.5- 3.7 per cent of GDP.

There is a lot of talk about polarisation in the stock price movement. You think small-cap stocks will start rallying soon and it is time to buy them?

With an improvement in liquidity in the banking system from the start of October 2019, we are seeing the credit spread between AAA and AA bonds narrowing, which is positive for rate transmission, and thus revival of growth and small cap performance. Investors should look at mid-cap and small-cap funds to add positions. We have seen an uptick in agri, steel, cement and fertiliser/agrochemical sales in recent months and a revival in global risk sentiments, too.

What’s your view on consumption — rural and urban? Do you think urban consumption has been hit by the financing crunch following the IL&FS crisis?

We believe urban consumption has been impacted not just by funding issues but also quality of jobs and risk aversion due to the slowdown in manufacturing. Meanwhile, rural demand fell due to lower income growth following subdued agri commodity prices for the last five years, where we are witnessing clear signs of revival.

Do you think that the US-China trade war will abate in 2020?

Yes, we believe that the situation will certainly be better in 2020 than 2019 as phase-1 of the US-China deal has been signed and we are in the presidential election year in the US. Despite the US economy growing at close to 2 per cent and unemployment being at multi-decadal lows, there is still no revival in manufacturing there due to ongoing trade issues.

We believe both sides will take judicious steps to help revive growth and improve the job scenario in manufacturing.

What’s you view on crude oil prices? What is the likely range this calendar?

As the WTI hovered close to $50/barrel for a long time, it helped reduce exploration activity. Therefore the ramp-up of shale oil production is lower than expectations in 2020.

With disciplined production cuts by OPEC (including the recently announced 0.5mmbbl/d cut), the current surplus in global oil market is about 0.6mbbl/d. Any major disruption can lead to some spike in prices. However, in our base case, Brent oil should trade at $50-70/barrel due to excess supply of alternative fuels like LNG, coal and adoption of electric vehicles.

Will gold repeat its stellar performance in 2020, too?

It is difficult to gauge the movement of gold. However, as all major central banks continue to increase money supply, investors may consider some allocation to gold.

Published on January 28, 2020
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