MUMBAI: Adi Godrej, chairman and managing director, Godrej Group, said global commodity prices are coming down, which is good news for the FMCG sector. "FMCG demand also continues to be quite good... so, generally, FMCG would have a very good year nexy year."
With inflation down to single digit over the last two weeks, does it improve the outlook for you?
Godrej: Yes, not only has the inflation started coming down, I expect it to further come down and reach very low level over the next three-six months... global commodities prices are coming down and this is good news for the FMCG sector. FMCG demand also continues to be quite good. So, I feel, FMCG generally will have a good time next year.
Give us a sense of the margin picture going forward. Also, why do you think FMCG companies are increasing prices in a market situation like this?
Godrej: I don't think many FMCG companies are increasing prices now. There will be an increase in some certain sectors and there may be declines in some sectors. I think there was considerable increase over the last year-and-half because commodity prices were rising. Now, prices are falling. I don’t think, overall, there will be any inflation in the FMCG sector over the next year or so.
You were recently in Delhi for the India Economic Summit. How would you best describe the sentiment in corporate India now in the backdrop of the global slowdown?
Godrej: Clearly some parts of the economy are affected - auto and residential property... this is mainly because of the liquidity problem. Consumer financing is just not available, and where it is available, costs are very high. So, inflation is a problem of the past, fiscal deficit is a problem of the present, and the problem of the future will be slowing growth... I think the government needs to take every action on the monetary front - both in liquidity and interest rates and on the fiscal front.
India is in a very good position to stimulate the economy if the government acts rapidly... I think the growth rate can be stimulated to as high as 8% in the next financial year.
Is that figure for FY10?
Godrej: Yes, FY10 could be a good growth year for the Indian economy if action is taken very quickly.
What kind of action would you like and what is your own assessment?
Godrej: No one would close factories if cutting prices can solve the problem but how will cutting prices solve the problem? availability of consumer loans is very tough... So liquidity must improve... CRR and SLR must be cut and interest rate must be brought down. If inflation comes to low single digits, obviously, interest rate must come down to around 8%. Now, it is much better to work on inflationary expectations than on inflation numbers. If you look at inflation on a month-on-month basis, it is down. There is deflation compared to last month... so, I think one must work on inflationary expectations and not on the year-ago numbers. Once that is taken cognisance of, the government needs to announce fiscal packages.
What could be the extent of the stimulus package and what would be the quantum that you would like to see?
Godrej: The stimulus package would be good for everyone because as soon as you bring taxes down, the economy improves, and your revenues might actually go up. I would not like to put a number on it but there is clearly need for action both on the monetary front and on the fiscal front.
A lot of people believe that FMCG is a defensive sector... no matter what the slowdown is, most companies will continue to post good numbers simply because these are essential goods. What is your own assessment? How do you see the FMCG sector growing in terms of numbers?
Godrej: My assessment is no matter what happens on fiscal stimuli or monetary stimuli, FMCG will do very well in the next financial year, and continue to grow... but there are other sectors that need measures....
How are you viewing the real estate sector and the pessimism that surrounds it at this point?
Godrej: I don't think RBI is talking of liquidity tightening to the realty sector. I think liquidity has improved a little bit - the big problem is consumer finance... it is very expensive and interest rates are very high. Interest rates to industry are running at 13-14%... when inflationary expectations over 3-6 months are down to single digits, real interest rates become very high. So, interest rates must be cut dramatically... once that is done, it will create demand for property.
We should have a clear programme in which interest rates are brought down to the earlier level of consumer finance. Corporate finance should be available at around 8-9% in the near future... if that happens, the economy will be stimulated, and I think growth will be back on track.
How are you viewing the development on creeping acquisition norms relaxed by Sebi and the increasing number of corporates going with buy backs?
Godrej: I think the development to increase the creeping acquisition and the buy back limit from 55% to 75% is a very good move. I think they should further liberalise for larger companies to between 75% and 90%. This is clearly a good opportunity for both buy back and creeping acquisition, which can help the stock market recover from abysmal low levels... the move taken by Sebi is good... |
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