Don’t be over-optimistic about India escaping trade war pain

"We were trying to downplay the negative effect of trade wars but now India is also becoming a participant as the US has slapped import duties," Kunj Bansal Partner, MD & CIO, Acepro (Sarthi) Advisors Pvt Ltd, tells ET Now.Edited excerpts: Which way are you tilted when it comes to banks? Is it safest to stick to the HDFC Banks of the world? It depends on the perspective one takes. It is safer to stick with an HDFC or an IndusInd which have continued to report good performance financially and getting rewarded in valuation and share price returns. In the last three-four years, public sector banks have consistently been in news for wrong reasons. I have been negative on the whole sector. At this point of time, one has to see if some of the NCLT/IBC related cases do turn positive. That can straightway add to the kitty of some of public sector banks. But it is really difficult to take a call in terms of long-term investments in these banks. Here is one company which has got the script right. Whatever niche investments they have done in Zomato, Policybazaar and others, they have got it right. Are you surprised that the market is not rewarding the Info Edge stock? It is a question of the phase of the market. Whether the market is looking at actual profits and cash flows coming in or if it is happy with the top lines, the eyeballs, the footfalls as we have used to call it earlier? I do not have the ready numbers but one has to look that how many companies got started as new ventures in last four-five years. In percentage terms, very few probably have been successful and that is where the markets’ doubts remain. In the current financial year, while the largecap indices have recovered and are close to the peak, the midcap and smallcap indices have been falling. Do you think this would really influence valuations in the FMCG business? There are two-three perspectives to the whole development that has been happening. One, sometimes a brand gets started by a company, gets built, is made to reach a certain stage and then the companies realise that for X, Y, Z reasons they are not able to take it further and they want to divest it. Some other company buys it and is able to make a success of it. In a lot of cases, they are also not able to make a success of it. So only time will tell whether this change as and when it happens, become successful for the buyer or not. I would also like to extend this whole saga from the shareholder’s point of view and that’s how the shareholders especially the minority shareholders will be rewarded. A case in point in the recent history in India has been the buyout of Lloyd brand by Havells. One has to see whether the Lloyds shareholders, especially the minority shareholders, got a fair deal or not. That is something that will have to be monitored in this case as well. The brands under GSK are great but I wonder what is in it for HUL? How much can they push the needle when it comes to getting really aggressive with a purchase like GSK? HUL has the largest distribution today in the country and of course the brand and the trust in the brand and HUL has been trying to enter into the foods business with some success. This can be a very big win for them.Just want to discuss the market construct as well for you because up until now globally things were looking strong. Our markets are shaky and that too in a very concentrated manner within the mid and smallcaps. Do you sense that trade war fears could escalate, bring about a domino effect and we could fall even further? We Indians are ever optimistic when it comes to cricket and market. We were trying to downplay the negative effect of the trade wars but now India is also becoming a participant as the US has slapped import duty and India has done a tit for tat. Already China and US are at war. Initially, it was being underestimated and people thought it would not escalate. But now, one has to take it seriously. It could have an impact. When it comes to the Indian market, I am trying not to be as optimistic. There will be very few sectors which will be affected by reduced exports to the US and to that extent India is still an isolated economy when it comes to its global trade. However, steel exports will get affected. But that also I guess is miniscule, 2 to 3 odd percent or something. Yes. Gems and jewellery export could be the other one although the listed opportunities there are very less.This may have cascading effect because we underestimated the global impact. Economists globally have started throwing hints about probability of a slowdown because of all these factors. If at all, that scenario plays out, would that have a far major impact on India? Certainly because we still are dependent on global trade. It is just that in relative terms, our global trade as a percent of GDP is still in the 20% to 30% range compared to 70-80% for a lot of other countries. To that extent, we will be affected less but it could extend to IT, to work visas being given to the IT sector etc. Overall global trade in any case was not growing. We hardly had started to come out of the recession in the whole Euro zone and if all these things happen, probably it could escalate.

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