Monday, January 08, 2018

Kailash Gandhi, Chairman, Western India Regional Council, Institute of Cost Accountants of India (ICAI)


Courtesy: IIFL Wealth MarketXpress bulletin


“Landmark reforms are welcome, but they demand better public awareness to secure the decisive buy-in that paves the optimal path towards desired outcomes”




Known for his candid observations rooted in industry activism, Kailash Gandhi is a veteran of over two decades of global experience across domains and verticals. An ACCA from the United Kingdom and Cost Accountant from India with additional qualifications in Law and Management Consultancy, he commands invaluable insights into Business Development, Corporate Finance, Strategy, Banking, Fund Management, Investment Product Engineering, Auditing and broad-spectrum Business Consulting. After fruitful stints in key positions with leading organizations including GE Money and ITC, he incepted Knowledge Resource Group (KRG), a value-added business advisory firm providing Financial, Accounting, Costing, Business Processes Improvement, Investment Management & Consultancy services and solutions, focused on the MSME and SME sector. He touched upon on a host of macro and micro issues spanning economy, industry and markets in this Q & A with Sudhir Raikar...

What’s your view on the current state of the Indian stock market?
Clearly, the market is overvalued, and we can expect some correction and consolidation going forward. In the last three years, India has had a great run on the domestic front. Although corporate earnings were muted, market witnessed a strong rally due to high liquidity courtesy DIIs and FIIs. To add to overall comfort, commodity prices came tumbling down, inflation was under control, fiscal deficit was not a concern, oil prices were at their historical lows and government spend was reasonably high.
But looking ahead, oil prices are inching up, ditto for commodity prices. Rupee is depreciating, and fiscal deficit is posing a challenge. Yields are going up; business sentiment is yet reeling in the aftermath of demonetization and GST rollout. The NPA problem is a sticky one and there’s no silver bullet in sight given the weight of priority lending on PSB agendas on the one hand, and the lopsided expectation of achieving ‘private sector-like’ results on the other. This is a dichotomy that merits quality attention before we expect miraculous results on the NPA front.
Having said that, India retains its competitive edge among EMs, thanks to our relatively sturdy macros, stable government, and domestic solidity. The government has surely created an enabling environment for the industry. GST has opened a new era of purposeful taxation in the country by greatly simplifying the indirect tax structure. As for the direct tax revamp, given that a special committee is already on the job, our overall tax-to-GDP ratio is bound to improve going forward. India’s value prop looks robust enough to lock horns with emergent challenges. The recent rating upgrade by Moody’s is an international validation of this belief.

Where, do you feel, Nifty and Sensex are headed in 2018?
We are not too keen about Nifty or Sensex going up or down. We trust fundamentally sound businesses through a categorically stock specific approach, irrespective of market conditions. We feel novel themes and narratives in sectors like specialty chemicals, agri and consumer/consumption would do well while corporates needing heavy capex would find the going tough. To answer your question if I must, Nifty and Sensex are likely to scale new highs till the first quarter of 2018. Thereafter, we can expect discernible volatility. This is clearly a liquidity driven market. Lot of money is being pumped by retail investors in form of mutual funds and I think the inflow will continue, thanks to low FD rates and depressed real estate. Equity will invariably prove rewarding over the long term.

How would you rate other asset classes like Gold or Real estate vis-a-vis equities?
The adage OLD IS GOLD continues to be a compelling lure for most Indian households, especially for the female populace. The yellow metal’s ornamental value will never lose its shine but given its high price and allied safety concerns, physical gold is a less preferred asset class for investment. There’s the alternate option of sovereign gold bonds but the liquidity challenges can’t be overlooked. For businesses, gold is equivalent to cash but due to regulatory issues, it’s not that popular a hedge that is made out to be. Gold will always be part of one’s portfolio but not from the investment perspective, and long-term returns don’t look exceptionally promising despite the ‘safe haven’ value prop.

Talking of real estate, given that it’s a predominantly cash-driven business prone to murky deals, it was hit hard by the demonetization drive. The sector is now undergoing a phase of cleansing in the RERA era where we see transparency emerging on both demand and supply sides. It would take time to redefine itself as a thriving asset class although long term prospects appear bright. We also sense Indian consumers are now in favour of lighter asset models. Consequently, they are happy to stay in rented properties rather than bear the huge EMI burden that ownership invites. This trend shift would also have a bearing on sector prospects.

Opinion is largely divided on the pros and cons of the government's Demonetization drive. What’s your take?
There are three aspects we must talk about in this context: demonetisation of Rs. 1000 notes, remonetization of Rs. 500 notes and monetization of Rs. 2000 notes, all aimed at arresting the stock of black money and counterfeit currency. But what happened in consequence? 98.96% of the currency found its way back into the bank. The demonetization had no effect on the generation of black money through numerous channels, nor did it touch that part of the stock held in other asset forms like Benami properties in land and real estate, gold, foreign currency, offshore bank accounts and the like.

Worse, it upset the conducive environment that was painstakingly created for the landmark GST bill. Prior to November 8, 2016, our experience was that people were truly geared to embrace this milestone change on the tax front but post demonetization, their enthusiasm was overturned, especially in cash-driven segments which suffered a huge jolt. On the brighter side, demonetization helped promote and market electronic transactions which in the long run could help establish a culture of digital money.

But has not the government shown positive intent on the reforms front?
Undoubtedly yes. Various legislative changes made by this government like GST, RERA, Insolvency and bankruptcy code will have a positive long-term impact on the economy. But all depends on the quality of execution over time. Disruption from constant amendments to laws, inadequate knowledge of professionals, stubborn mindset of people who are invariably averse to change and lack of awareness particularly in remote and rural areas are factors that pose a huge challenge to any Pan India implementation. If metro professionals find it difficult to cope with transformation, what to talk of small town populace, where there’s a strong dearth of qualified professionals. Lack of technological know-how and its poor acceptance at the grassroots is another bottle-neck.

Landmark reforms are always welcome, but they demand better public awareness to secure the decisive buy-in that paves the optimal path towards desired outcomes. I feel the government must gainfully engage all three institutes – CA, CMA and CS – for feasibility studies, cost benefit analysis, BPR initiatives, and also for ensuring functional literacy of industry stakeholders and citizens. We possess authentic knowledge of parochial realities, not just professional expertise. Hence our recommendations would go a long way in ensuring the success of many a pioneering initiative. More importantly, it will eliminate the need for hindsight adjustments that the government is forced to make in the wake of growing industry protests and resentment following rushed implementation of any initiative rooted in disruption and calling for mass-scale upskilling of resources at short notice.

What role do you see CMAs playing in today’s business universe?
The CMA profession has evolved with time and now plays a pivotal role in helping businesses to move up the value chain. We live in an era of unprecedented disruption, one that is replete with emergent technologies and enormous data explosion. The financial transformation in this incredibly dynamic environment goes way beyond providing accounting solutions. Today, CMAs don’t merely provide cost management services, they act as the vehicles of inclusive growth for organizations across verticals. Given the multitude of multi-product manufacturing and distribution ventures, it has become even more crucial to gauge the exact cost of creating and distributing every product and service at different stages, to minimize expenditure and ensure optimum utilization of resources.

Today, various stakeholders including government, shareholders, investors, regulators, vendors and value chain partners constantly seek updated and analytical information to enhance their decision making and CMAs are ahead of the curve in providing all critical dashboards including KPIs and monetized metrics for use by diverse entities. I feel we CMAs have a lot to contribute in helping businesses to put technology in perspective, be it Big data analytics, Machine Learning or Block chain solutions. We can help organization plan their tech evolution by becoming their change agents, helping them drive revenues, control costs and mitigate risks through new-age tools like predictive analytics, forecasting and econometrics, mathematical simulation and text analytics.


What are the key priorities of your institute?
At ICAI, we are unflinchingly focused on expanding the purview and potency of all critical areas of our professional realm including Cost Records, Cost Audit and Strategic Cost Management Consultancy, Tax management, Banking and Financial service offerings including Valuation and Company law related services including Insolvency & Bankruptcy Code. We regularly conduct capacity building programs and seminars for members, and counselling and placement programs for students. We strive to raise the bar for strategy consulting and integrated reporting to help the government and industry reap rich rewards in the form of evidence-based decision making.




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