Terror strikes to hit long-term FIIs funding: Nirmal Jain

Growth in gross domestic product, or GDP, for Q2 FY09 has come in at 7.6% as compared to 9.3% YoY, and 7.9% QoQ. A CNBC-TV18 poll had estimated it at 7.25%.

 

Commenting on similar lines,

Nirmal Jain, Chairman and Managing Director, India Infoline, said the market has already factored in a lower gross domestic product or GDP, growth for Q3 and Q4 FY09. “However, the current numbers are better than street expectations.”

 

He said there is no immediate impact of terror attack, but in the long run FIIs will react. “Given the terror attacks, we need tough government measures to assure investors, as FIIs won't put in money in India easily, despite good economic data.”

 

He feels hotels, airlines and tourism are likely to be in for a few tough quarters.

 

Here is a verbatim transcript of the exclusive interview with Nirmal Jain on CNBC-TV18. Also watch the accompanying video.

 

Q: 7.6% is not a bad number for Q2 but we haven’t had any great reaction from the market. Do you think the market is overwrought about Q3 and Q4?

 

A: The market reaction is not there, because the market sees by whatever is happening in Mumbai and the terrorist attack on the city. If you look at the last two days Asian markets and the US markets, they have done well, but Indian markets have been flat. Primarily, this underperformance is cognizance of what is happening in the business capital of the country and at this point in time market volumes are low and 7.6% in Q2 is fine. But, the market probably has factored in declining Q3 and Q4 and this always comes in the lag effect, as one probably would expect much fluent growth in Q3 and Q4. The market is slightly positive than what was expected, so I don’t think there is much of a reaction to this.

 

Q: What about the events of the past few days? Do think there might be any long-term impact for our market or as in the past we will manage to put it behind us?

 

A: There will be some impact, in fact India’s business is conducted in Mumbai and Mumbai’s business is conducted in Taj and Oberoi, so we might be naïve to assume that there will be no impact. But we have seen in the past in China there were events like Tiananmen Square, investors even left it behind after sometime. So if the government is able to come and demonstrate that we can tighten our security, we can make the city much safer, then probably investor will look back at this country. There will be definitely some impact in this country for next two to three quarters, because most of the foreigners, who come for Foreign Direct Investment (FDI) or Foreign Institutional Investor (FIIs) investment or even for conferences, they stay in these hotels and such negative publicity in terms of all the international newspapers headlines are about Mumbai.

 

There will be some impact and impact wouldn’t be felt in copule of days, but next couple of quarters you will see that impact becomes visible in the foreign investment in the country. Markets won’t react, foreigners won’t react by putting in more money so easily, positive news can come in the form of much better agricultural production, may be oil price cut, inflation numbers coming down, Reserve Bank of India (RBI) bringing down interest rates. So even all these positive news will not attract much of foreign capital as it otherwise would have in the next few quarters.  

 

Q: What do you do with the whole infrastructure space with the specific relevance to the kind of growth we have seen and the talk that there has been of some kind of an infrastructure spend or stimulus for the sector?

 

A: I think the government is facing elections in next few months and also the entire focus politically will be on the terrorist, and they would not like to lose much vote to opposition based on all the developments. So, infrastructure will take backseat for sometime. A lot of spending would come from public sector and government on infrastructure ought to have come in next few quarters, but that probably won’t happen. So, one will wait for elections to get over and new government to come in before we look forward to flow of investment in the infrastructure sector.