Time's Ticking Fast on Modi Govt's Feel Good Wave: Parekh

New Delhi
Time's Ticking Fast on Modi Govt's Feel Good Wave: Parekh

Lauding Narendra Modi for being a Prime Minister who leads from the front, industry leader Deepak Parekh has said the new government has created a "feel good wave" but time is ticking fast to covert this euphoria into "real changes" on the ground.

Known for speaking his mind, Parekh said that if real changes are not seen on the ground then India might well lose the chance of becoming a preferred investment destination.

"We are riding a feel good wave and we are lucky that it has lasted so long. But time is ticking fast... The progress of this new government is being increasingly scrutinised and living up to the built-up expectations will not be an easy task," Parekh, who is Chairman of mortgage lender HDFC, said.

While speaking at an ISB capital markets conclave here over the weekend, Parekh was referring to positive sentiments in the investor community after the Modi-led government came to power in May this year.

Listing out positive changes in recent times, Parekh said the new government is perceived as being able to deliver on growth, which is driving the present euphoria.

According to him, India has a Prime Minister who leads from the front and key macro fundamentals are working in the country's favour, but there should be changes on the ground to be seen.

"... If one does not see real, physical change on the ground, pipeline projects actually taking off, new jobs being created and faster decisions being made on policy issues, we may well lose our chance of being a preferred investment destination," Parekh said while asserting that India cannot afford such a situation.

"We have to stay in hope that things will really turn around. I for one still believe that India's best days are still to come, and come it will," he added.

Even though capital markets play a very crucial role in supporting inclusive economic development, Parekh said it cannot be denied that "the optimism and enthusiasm on India today is perhaps more with foreign investors than domestic ones".

Presenting a grim picture of retail side of the Indian capital market, he said that their direct participation is 1.4 per cent of the population whereas the same is at 9.4 per cent in China, 16 per cent in the UK and 18 per cent in the US.

This shows woefully low financial inclusion in the India growth story, he added.

Noting that increasing retail penetration requires a big thrust of investor awareness at the grass-root level, he said it is the FIIs who are really benefiting from the country's well-regulated equity markets.

According to Parekh, it is estimated that over the past one year, net FII buying of Indian equities exceeded domestic buying by a ratio of 10:1. 

Parekh also said that India currently has "exceptionally good conditions" in place to aspire for 10 per cent economic growth but much needs to be done to achieve that target.

While stating that a 10 per cent GDP growth was certainly achievable, Parekh, however, said he would not "hazard a guess" on the time frame for achieving a double-digit growth.

"I try and think back and I can't recall any other instance than now when India had rising stock markets, falling oil prices and a stable, majority government, all at the same time.

"These are exceptionally good conditions to once again lay the foundation for the much-aspired 10 per cent GDP growth for India," he said.

Parekh, who has been known for his candid views on issues related to Indian economy and markets, said it is "suffice to say that 10 per cent GDP growth will not happen without extensive judicial, electoral, police, labour and land reforms, along with financial sector reforms."

"At this juncture, much needs to be done to even attain a 6.5-7 per cent GDP growth rate.

"But yes, the picture had changed dramatically for India," he said, while listing out three fundamental changes including improved confidence with the government being perceived as being able to deliver on growth and what is driving the present euphoria.

For the current fiscal, Parekh said the estimated GDP growth rate was 5.5-5.9 per cent, while adding that India has been performing significantly better than many other emerging markets.

He said research analysts are already describing India as being on the top among the BRICs and the "best house" in a bad neighbourhood.

"And to borrow the latest buzz phrase from Bill Gross, India is considered the 'cleanest dirty shirt' amongst emerging markets," he said, while adding that India has become the toast of the FII party as it is perceived as 'less of a mess' in comparison.

Parekh said that FIIs have invested USD 37 billion so far this year, including around USD 14 billion in equities and debt inflows of USD 23 billion.

"And while another new high of 28,000 has been touched, brokerage houses have long since sent the Sensex forecast sky high," he added.

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