My estimate is that Sensex will cross 50,000 in 18-24 months: Motilal Oswal

Corporate earnings growth is the key to woo overseas investors after the BJP-led ruling coalition was voted back to power with a bigger majority, said Motilal Oswal, CMD of Motilal Oswal Financial Services. Non-banking finance companies with real estate exposure are in bad shape and the new government’s budget should spell out the policy outlook as investors are betting big on it, Oswal said in an interview to Saikat Das. Edited excerpts:

Are overseas investors increasingly looking at India?
People are optimistic about this new government. The conviction and confidence is there that Modi 2 regime will be better. We saw that a lot of foreign money is also coming in. The only problem is corporate earnings. GDP is getting impacted, affecting private listed companies' earnings. So, a slowdown in the economy impacts earnings.

What needs to be done to attract overseas investors into the equities or debt?
Overseas investors are quite optimistic about the environment in India. The government is stable. If your currency stays stable, the flood of capital will come in. We will definitely see it grow year-on-year, this year. Last year, there was uncertainty about the government. In 2018, we will see complete change. Foreign investors are bullish and then your US-China trade war may be good for India. India is not impacted.


Where is Sensex heading to?
A lot of money is coming in here. There are now two scenarios. If earnings growth happened, then definitely the market will shoot up, but if the earnings growth doesn’t come, then we will see the market grow slowly, slowly. My estimate is in next 18-24 months Sensex definitely will cross 50,000 .

That’s my personal view; unless the earnings collapse, which I don’t see. That kind of scenario is something we are moving away from.

Will real estate rattle NBFC sector?
See, the fundamental problem is real estate. NBFC is lending to real estate market, which is in bad shape.

After demonetisation and RERA, the slowdown in the economy has impacted real estate as a sector, which is in serious stress. We are seeing the pain because NBFCs and banks have lent them. Developers are in stress.

Like, when developers don’t pay the money to the NBFCs. NBFCs have borrowed from mutual funds and banks. So, it’s a kind of a cycle.

NBFCs, currently in the eye of the storm, have grown very fast. So, when the market condition is not conducive, especially real estate. So what is bothering them most, solvency or liquidity?
Solvency is not the issue. See, solvency maybe a problem with say, a few. Those are highly leveraged in asset liability management. So, the problem is there are excessive growth stories, there have some kind of inherent issues on the quality of book and the quality of assets and the regulatory has been really tightened completely. Everything is a kind of domino effect.

Do you foresee any signs of an immediate easing?
I think the budget will be the big indication on overall policy. How the government makes the overall policy, how they build revenues. How they build investments. How they use assets. The RBI is quite supportive, but the problem is that the overall activity is so low that interest rate is not impacted. Rate transmission should happen.

What is your take on the housing sector?
The prospect are huge! See, the mortgage penetration in India is 10%, even in other emerging markets it is only 30-40% and in developed markets it’s 80-90%. So, mortgage penetration is very low. The Pradhan Mantri Awas Yojna should also be instrumental in attaining housing growth, especially low cost housing. I am quite confident that our affordable loan segments will see growth; having learnt the lessons.

How has your cost of borrowing differed in the past eight months?
Cost of borrowing really must have come down little, but that’s the function of the credit ratings. Credit Rating upgrade has just happened so now I see the cost of borrowing coming down 30-35 basis points in the next one year.

How do we push growth?
Now the issue is how we kick start the economy so that manufacturing will create more jobs, consumer sentiment will go up. Private investment happens in the capital cities, real estate business will get some boost in form of whatever intervention is required. Public sector banks will get proper capital. In absence of capital how do the banks pursue their lending business?

Will India gain from the trade war between US and China?
The money which was going to China, some of that money will come to India. India will be the natural beneficiary of global trade wars. Now, with the new government coming in and pushing lot of reforms, India will be in a better position than China.