Uday Kotak warns against bubble in mid-cap, small-cap stocks
Davos: Buoyed by improving micro trends in the Indian economy, eminent banker Uday Kotak has said the equity markets are doing better than even the broader economic trends with investors’ money flowing in but there is a need to be careful with mid-cap and small-cap stocks.
Kotak, who was here to attend the World Economic Forum (WEF) annual meeting, said urgent steps are needed to further bolster the macroeconomic scenario, saying challenges have started emerging on that front.
“We need jobs in this country. We need to balance our domestic interests and our international standing. Even if we look at the US President Donald Trump’s positioning, he has also said that he wants jobs in America and his tax cuts have suddenly led to a big upswing in the US employment market,” Kotak told PTI in an interview here.
The WEF annual meeting from 22-26 January in the ski resort town of Davos saw a number of world leaders, including US President Donald Trump and Indian Prime Minister Narendra Modi, address thousands of CEOs and others from across the world.
Asked about his views on the growth momentum of the Indian economy with overall global recovery process on, Kotak said, “My personal view is that the domestic Indian micro growth is back. If you look at our bank’s results, we have seen a solid growth in profit and a robust loan growth.
“We are clearly seeing loan growth coming back in the economy. The micro India is getting better. The time has come for us to keep the macro stable where there are now larger challenges.”
The industry leader said India had good macro situation in the past three years but micro was challenging at that time, but now the situation is so that micro is getting better but macro is getting more challenging.
“If we look at specific issues, the domestic formalisation of economy is helping many companies. The macro challenges are coming from oil and commodity cycle and that may increase our current account deficit and put pressure on fiscal situation, though I feel India will manage its fiscal deficit situation in 3.4% range this year and then control it back to 3.2% next year.
“I believe we will manage the fiscal discipline reasonably but we are moving into an era of better micro and more challenging macro,” he said.
On his expectations from the Union Budget, Kotak said, “I feel we have to balance between where the finance minister will raise revenues versus the fact that the world is moving towards lower tax rates. Where does the money come from? That is a real challenge.”
He said the micro trends are now the best in what he has seen in the past three years but that does not mean equity markets are also all fine.
“The equity markets have gone even ahead. We are finally getting Indian savers putting their money into equities, including through mutual funds. That’s good news but we have to be careful that we do not have overheated mid-caps and small caps sector in the market. I would want that investors funds are invested in better governed Indian companies and one has to be a little more cautious on the small and mid-cap space,” he warned.
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