‘India has potential to grow at 10%… but land, labour reforms are important’: Anand Rathi

While there has been euphoria around India’s economy, how do you see the recent strong bull run in the markets? Does it raise any concern?

I genuinely believe that the right thing is happening in the country. We have entered into a capex cycle now driven by the infrastructure. World over the highest growth has come when the infrastructure was part of the growth story. If you look at China, Japan or the United States, the best years of gross domestic product came there when infrastructure was created. That is where I think, we lagged behind, but we are catching up now. If you see budgets over the last few years, the amount of investment announced for the infrastructure has really increased. Higher investment is possible because our tax revenue has increased rapidly, which gives us more headroom to spend money on infrastructure.

I believe that 10 per cent growth is reasonable to expect (for India). This is the potential assessment (for India’s growth) as there are many variables to it, including the global scenario. The strength of our economy lies in the demography, young population, consumption, investment, housing, entrepreneurship and diverse skill sets. Reforms that have contributed to growth include GST, Jan-Dhan Yojana and tax digitisation. Some of the major bottlenecks of growth include high interest rates, which have now come down, power costs and logistics.

Two important reforms which are still pending are land and labour. Do you see it as a concern?

Reform is a continuous process. In a democracy, it takes a longer time to achieve anything. How many years did GST (implementation) take? If our economy has to grow at 10 per cent, we need reforms…land and labour reforms are important. Every government has brought in reforms, and this government has accelerated those.

Are we reaping the benefits of the infrastructure created so far or is in the process of being created?

We have seen vast improvement. Earlier it used to take four days for a truck to come to Mumbai from Kolkata, but it comes in 2.5 days. Initially, tolls were created and today we have the fasttag, which has smoothened the entire process. Our advantage is that because we are developing later, we are also going ahead fast, technology-wise. Our major strength lies in digitisation.

We have seen the Sensex and Nifty touching record highs. How sustainable is this rally?

I think no one knows the market right. But we know one thing, the market which goes up, will come down. What are the risks in the market? The biggest risk in the market is volatility, and volatility is related to the period…one month’s volatility would be higher than one year, and one year’s volatility would be higher than three years. If you look at the last 25 years, in most of the years the difference between high and low has been more than 10 per cent. Markets will remain volatile. If someone asks me the target for the index over the next year, my answer would be, I don’t know. But in five years, I can say that the index would cross 1 lakh level.

Are there concerns about the valuation of stocks?

Valuation depends on an individual’s assessment. There are bulls and bears in the market. Bulls buy in the market and bears sell. FIIs sold $30 billion in fifteen months. They sold because they thought in the emerging markets, India’s valuation is high. They sold during September and October when the market was down, but are now buying. Short-term value is dependent on demand and supply. I won’t recommend people to look at valuation. I don’t have any concerns. If you want to remain invested for five years, buy stocks of a good company at any valuation.

There has been a rise in mutual fund folios. At the same time, the money coming into mutual funds from smaller towns has also increased multifold. How do you see this change?

Equity, as an asset class, gives the highest returns. What percentage of financial savings are now going into equities? It is very low…not more than 10-12 per cent. What should it ideally be? It should be 25-30 per cent. If an asset class is good, the money will flow into it. So, both the number of investors and the total amount of investment will keep on increasing. The monthly SIP (systematic investment plan) flow is currently $2 billion per month and it will increase to $5 billion soon.

What would be your advice to retail investors looking to invest in the market?

My suggestion would be not to look at the short-term volatility. In the short term, markets will go up and down…it cannot run in one direction. If you want to invest in the markets, come with a vision of five years. Also, do not time the markets.