The KPMG surveys done annually have discovered that there has been a fair degree of consistency as years pass by, said KPMG India's CEO Arun Kumar. He made the statement while speaking about the survey along with Rashesh Shah, MD & CEO, Edelweiss Group and Sumeer Chandra, MD, HP India.
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Here is the detailed description of the interview.
Q: Explain the methodology behind this report? How this is different from the last report and to you the most important finding?
Kumar: The KPMG runs a survey every year. We survey about 1,300 CEOs globally in 11 countries, and India is one. We have 125 CEOs in India. The size of the companies are USD 500 million and above going to well over USD 10 billion. So we get the larger companies captured in this survey. We have multiple questions. Issues about what are their top priorities, where are they spending their time? Is it on technology, is it on geographic expansion, is it on M&A and so forth.
What we find is that there has been a fair degree of consistency year over year. Three years ago there was an obsession that you better get moving with technology or it would be too late. In fact the report was titled ‘Now Or Never’. The next year we found that companies had already gotten into technology and majority of them were of the view that they should be disrupting rather than be disrupted. This year they are working through it and we called it what growing pains because they are tackling the issues of working through new technologies and the changes that are needed.
The other interesting point I would make is that there is a fair amount of consistency between Indian CEOs concerns and global CEOs concerns. So there are not many differences. For instance, optimism in the global economy. Generally this year we found huge increase in optimism. Last year it was like 63 percent, this year it is 89 percen; that is a pretty big jump.
Q: There is a drop as far as India is concerned?
Kumar: However, what I want to say is that out of the 11 countries, about 4 major economies also had the same sense; they had less confidence in their economies.
Q: What does that tell us according to you?
Kumar: It tells us in India, considering that the survey was done earlier part of the year, we were just coming out of the GST implementation etc. so those could have been some of the concerns that they had. However, I would not generalize that too much. The paradox is that people said very good about the global economy and were much more cautious about their own country’s economy.
Q: This is the fourth edition of this report, right?
Kumar: The fourth edition.
Q: Is there a way to measure what has been said in the report? Is this essentially looking ahead, is this looking back?
Kumar: It is certainly looking ahead. So, we look to the next three years and see what are companies projecting for the next three years, what are they going to prioritize for the next three years. So really looking forward.
However, what I said was that when you look at the last two years you find some continuity and evolution in what they said earlier and what they moved on to do next year.
Q: The point about optimism about India dipping a little bit as compared to last year, do you sense that at all in your business?
Shah: If I talk about my business which is in financial services, everybody is very upbeat. However, in way the finding of this survey seems to be what the underlying mood is because we are seeing that there is a clear uptick in earnings, corporate earnings there is an uptick, people’s topline, margins, profits are growing, but people are still not upbeat. So, we call it uptick but not upbeat yet.
The part of the reason people are cautious about India as a whole are the macroeconomic headwinds that we are facing. Oil price, interest rates going up, liquidity, rupee is little bit under pressure. So that makes them cautious at an overall macro level. However, individual industries whether it is automobiles, whether it is cement, whether it is financial services, our industry, they are all doing very well. In financial services, private sector, NBFCs, or bank, it is showing 20-25 percent growth in profits.
Q: That is the strongest part of the economy.
Shah: It is, but auto is also not doing badly. Auto is doing well. Cement is doing well. We are seeing a lot of other sectors which are also doing well from a growth point of view. Even real estate in the last quarter we have started seeing an uptick in that. So it is spreading. I think there are many parts – steel is doing very well and we are seeing a clear uptick.
Q: 89 percent of the CEOs surveyed, expressed confidence in the global economy while only 69 percent seemed optimistic about the growth of Indian economy. You heard Arun Kumar and Rashesh Shah, but does it seem a little strange to you? Global economy and confidence in global economy should act ideally as a tailwind to Indian prospects, right, but what we have seen is, the global growth has picked up and we see that in numbers as well, but the growth although it is picking up, the Indian growth, it is kind of lying behind as compared to for example the previous cycle. Your thoughts.
Chandra: The way Arun Kumar described it, the survey was done at the beginning of the year and we were just coming off the major implementation of GST. So I can understand why there were some degree of cautiousness. However, when I look at the optimism right now, I actually feel very confident. In fact the last couple of quarters have been extremely strong. The unique position HP has, is we serve virtually all customer segments whether it is consumers, SMEs, or even enterprise and government customers.
Right now we are seeing great buoyancy in the small and medium businesses and the consumer segment. Enterprise I would say is the slowest growing right now and I think that is reflection of some of the sentiment that you are just talking about. However, I do think the optimism or the sentiment has improved over the last couple of quarters. So I feel really optimistic and I see 70 percent as a very good number; it is more than glass half full in my view.
Q: 66 percent of the CEOs see territorialism as a major threat to their organizations growth. Can you explain that; what do you mean by that?
Kumar: Threat and opportunity – I would say the threat is what we are hearing about tariffs and policies from many parts of the world. That certainly is disruptive. So that is a big issue that CEOs have to confront with. This was not such a big issue a year ago. It is very much front and center this year, not just for Indian CEOs, but globally.
However, what Indian CEOs are also doing is looking for opportunities in that. So for example, Brexit, I think IT companies are finding that maybe there is an opportunity especially when you are serving the financial services sector, to reconfigure systems, to do a new outsourcing because they have to be reconfigured to cope with Brexit. Similarly, Indian companies based in the UK, are looking at what should their future plans be, should they expand there, etc. So it is interesting that while there are these protectionist headwinds, CEOs are looking at how to make the most of it.
The second part is in terms of geographic expansion. Indian CEOs and global CEOs are looking more at emerging markets than the developed markets. Couple of years ago there was much more interest in investing in the developed market. Today they are looking at Latin America, Eastern Europe, and Africa. Indian CEOs are doing the same as global CEOs.
Q: In your interaction with India Inc, you also lead FICCI, does this come out as a big concern or do people see this as an opportunity, broadly?
Shah: It varies from company to company and industry to industry, but clearly Indian companies are setting up manufacturing facilities outside of India to cater to local market because the expectation is that the trade war and the boundaries will go up. So if you want to cater to a particular market, it is actually better to have a base out there and we are seeing more and more companies also doing that.
We are seeing a lot of companies in India also starting to look at acquisition of operating assets. We have seen all the NCLT cases that have been there up till now, there has been a huge amount of interest and even the pricing that we are seeing for those assets, are at least 10-20 percent higher than what we all would have thought about a year ago. So I think there is a lot of interest.
People are starting to see growth. However, as I said earlier, because of the headwinds and the recent past, because GST, demonetization, Indian economy has gone through a fair amount of turmoil, so people are not euphoric and are not very gung-ho, but they are actually starting to experience uptick and expansion in profits and all. It is not just the large corporates, I think the small SME, like we have a SME loan book in Edelweiss, and we are seeing a huge amount of interest in SME loans and MSME is borrowing. They are seeing business opportunities now emerging more and more.
Q: On the point about territorialism, HP is a global business, global growth, US growth, we just got US GDP numbers for the second quarter – 4.1 percent. It is very strong, but at the same time you have got all these at least as far as conversation goes and sometimes in reality these trade barriers going up, it is kind of getting difficult to business. What is your sense? Many say India is not that large a player to really get impacted in any significant way, but your thoughts?
Chandra: I think the way we look at, there is a lot of change happening in the world right now. Across pretty much every continent you can see a lot of change and I think we look at change as an opportunity. I think global companies tend to be pretty well hedged. They have a portfolio of different country exposures, so, I think while one country does maybe not so well, you balance it off with other countries that are doing well.
As far as India is concerned, I agree, I think there is a lot of opportunity and I would say India to a large extent is probably hedged from some of the turbulence you are seeing in other parts of the world. So I continue to believe there is a lot of opportunity ahead across pretty much all sectors in India.