A day after Larsen & Toubro chairman A M Naik went public with his concerns over the state of the economy, HDFC Chairman Deepak Parekh Friday said there has been a distinct slowdown and that the problem was compounded by the tight liquidity situation in non-banking finance companies (NBFCs) and housing finance companies (HFCs) and the continuing reluctance of banks to lend.
To my mind, what is critical is re-instilling confidence in lenders to support growth in the economy, Parekh said. According to Parekh, the challenge today is risk averseness. Banks are reluctant to lend and there has been a flight to safety where a select, few, high rated NBFCs and HFCs have access to funding while for several others, access to credit has been choked, Parekh said.
As a result, a number of NBFCs and HFCs have curtailed disbursements. This, in turn, has had spillover effects into a number of other sectors, Parekh said at the Annual General Meeting of HDFC. One is hopeful that normalcy will be restored soon and by the time the festive season sets in, some of the risk aversenesss should taper off, he said.
Evidently, there has been a distinct slowdown in the economy which was reflected in a lower GDP growth of 6.8 per cent in FY 2019. While there has been an across-the-board slowdown in consumption, given the inherent demand and low penetration levels, I do believe this is temporary in nature, Parekh said.
The comments of Parekh and Naik assumes significance as GDP growth falls to 5.8 per cent in March quarter and growth of eight core industries, dropped to a 50-month low of 0.2 per cent in June as against 4.3 per cent in May.
On Thursday, L&T chairman Naik had said we should feel lucky even if GDP clips at 6.5 per cent , and recommended faster project clearances like the one in Gujarat when Prime Minister Narendra Modi was the chief minister, as a solution.
He said the situation is challenging on data credibility, saying one has to use one s own judgment while believing the official numbers. Growth is going to be not more than 6.5 per cent this year. My feeling is that though they (government) claim it is 7 per cent plus, if we can maintain 6.5 per cent, we will be lucky, Naik told reporters on the sidelines of the L&T AGM.
Commenting on the real estate sector, Parekh said: The demand for commercial real estate has been buoyant, especially across the top eight cities. One is seeing increased demand for commercial real estate, particularly from the IT sector, e-commerce and professional and services sector. Even demand for retail space has picked up in certain pockets.
In the recent period, several investors such as pension funds, sovereign funds and private equity players with deep pockets have evinced interest in the Indian commercial real estate sector, he said.
Parekh said the challenge in the housing sector has been with the upper middle segment and high-end luxury housing. It s this segment where unsold inventory levels are high. This is where the price of the apartments are typically upwards of Rs 2 crore. I would like to reiterate that the demand for smaller sized homes at affordable price points is still strong, he said.
Naik had said the trade war between US and China is a huge opportunity if India is able to attract units leaving China. However, India has not been able to make any success on that front as those companies have already chosen Vietnam and Thailand. How many industries have come here? For the past two years, the US has been talking of moving American industry out of China but we were busy in the elections. So we did not do anything, he said.
Gathering Cloud
* Car sales down; since July 2018, passenger vehicle sales fell in 11 of 12 months.
* June 2019 quarter, the worst quarter for industry in the last 18 years
* Tractors saw sharpest monthly fall in production: over 32% in June 2019.
* IL&FS crisis squeezed liquidity for NBFCs
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