Wacia Talk

December 24, 2019
Category: BTT Update

The discussion will revolve around the following questions. There may be more questions based on the responses of the panellists.

In your opinion, is the downturn real or an exaggerated media hype?
It is a regular cycle like a business cycle. It happens once every 10 years, only that we have forgotten the previous occurrence because of the recency bias that humans have.

Take for example you doing a walk, at your regular pace you are able to complete 1 km in 20 mins. After the walk you don’t feel tired and your routine continues.

Say that, there is some urgency and you have to run to reach your destination, You run and cover 1 km in 15 mins. You get a little tired after a little panting, your routine resumes.

Now, if you have an emergency and you run even fast. You make the same 1 km in 10 mins. Just because you managed to do the same distance in 50% lesser time, can you make it as your benchmark?
Will it be possible to continue at the same pace?

Compared to the small running, now your panting will be more and you have to take rest even before you take the next step. Need some water to get refreshed. While that does not mean you are done for your life time.

It is the same that is happening in the economy. We generally grow at 6%, moved up to 7%, there was momentum, we stretched to 8. Now we are cooling off bringing in changes that can take us to next such journey.

Media is a store keeper of news, they cannot keep giving good news, it will be boring and people won’t be there to listen. They have to make people fearful, they will use all the available options to do that.

If the slowdown is not real, what explains the disconcerting trends in the macroeconomic indicators?

Let’s look at the numbers, is it really worrying. Our average GDP growth in the last 30 years. That is since, 1991, the year when India began thinking of liberalisation. We open to global economy in 1995.

The average was 6.32% growth
Highest was 8.84 in 1999
Lowest was 1.05 in 1991
Last time we went below 5% was in 2008 – 3.08%. Before that, from 2000-02 3.80 to 4.82, now it is at 4.50%.
1999 – 8.84, 2010 – 8.49 & 2016 – 8.17

Range for our GDP is 2.55 to 10.47 using the current history and its standard deviation. As of now we are within the range. Not to worry.

Some industry numbers that are shaken –
Auto industry has taken a big hit, there are various reasons for that.
Ola – Uber reduced the need to own a car.
Car rentals made even people who do long distance travels by car, not have a need to buy a car.
EV, made those who had thoughts of changing their cars are even new buyers wait to have the experience of new vehicle.

Beyond all, there is no innovation. If you notice the car industry. Innova launched in 2004. Swift launched in 2005. Indica launched in 1998. After that only small tinkering of design
Today SUV’s are hot, because there is a design change. At least some people like it.

If the ‘slowdown’ is real, how early were you able to sense it’s oncoming? What did you do to fortify yourself? In hindsight, did the advance actions really protect you or reduce the damage?

We sensed it in the first quarter of FY 2018-19. When businesses begin to slow down on their growth. We have an automated system which takes care of both upside and down side.

We do stock and mutual Funds investing. The system is automated, when growth slows down, exposure to stocks get reduced. We get into cash.

In mutual fund investments, When economy turns down and prices drop it is a big advantage because it will help investors accumulate units at lower levels. When markets are only going to go up in the long run. Downside moves are boons to those investors.

If you had been investing in sip’s. All the units that you acquired in the last 2 years are the one’s that will give you very big gains 2 years from now.

Has the forecasting helped us? Yes, our portfolios had 50% exposure when the challenge was high. Now it has moved up close to 90%.

How long further do you think this phase will last? What are some of your major strategies to stay afloat and grow through this phase?

When there is big growth and high inflation, it is sign of a top. Now we are having the opposite. Both GDP & Inflation are down. This is the early sign that we are getting close to the bottom.

It is likely to continue for another 2 to 3 quarters. Growth will come back at a slower pace next year, because of the base effect of current years bottom, it will show as big growth and the same recency bias will make people get euphoric.

What specifically should the governments do to help you ride over the crises?

When both GDP & inflation are down, government begins to hear the industry and people’s voices.

The out come of that was the rationalization of GST, reducing corporate taxes. This tax reduction is a very big move. It will have a 33% compounding in industrial growth. You can imagine where India will be in10 years with this phenomenal growth.

If we are not turning up in the next 2 quarters, Personal taxes will be touched upon. It will get reduced. Government will put more money in people’s hands & urge them to spend.

People are not spending now, that is a different issue.

It is not that people don’t have money. In the recent 2 IPO’s, IRCTC & CSB. Issue size was 1080 crores. How much came in? 1.00 lakh crores, There is money in the system, it is not getting spent.
How many of you have bought a new car in the last 1 year?

What can industry and business associations such as WACIA do to help in a speedier recovery?

Innovation – today we have start ups disrupting almost every part of the business process. While there is no new experience that these start ups are creating. They are only destroying the life of lower level workforce.

Discount culture is ruining all the businesses. Jio has disrupted the telecom space, how many of us realise the impact of monopoly in this space and that too with Reliance. The other 2 players, go bankrupt, 2 lakh crores of banks loan book will go to default. One man’s greed has to be funded with tax payers money.

Unless people get a new experience, they will not splurge in spending. So, there is a strong need to bring new experience to the consumers.

Industry associations can work towards bringing awareness about this thought organise events to bring creativity and knowledge together which will help bring new user experiences, which will automatically propel growth.

What is your advice to other industries and business for braving the challenges ahead?

It is not the first time we have taken rest after a big growth, the next occurrence will be even strong as we expect the next upside to be very steep. Once we move past the 8% mark which can happen in 2012 or 2022, get ready for the next softening.

Continuous innovation to give new experience to consumers is the buzz word.

Apple brought a dramatic change in phones, Google is creating what you would not have even thought is required and in few years, without which we are not able to live. Such kind of innovation should be a continuous process.