Kunal Sanghavi, CFO, HDFC Securities In conversation with ETCFO, the financial services firm HDFC Securities’ finance chief, Kunal Sanghavi shared his views on how India Inc is recovering from the implications of covid-19.
“Work from home and functioning virtually will change cost dynamics and demographics. There is a high possibility that service industries will hire people from tier 2 or tier 3 cities or any part of the country and get that relative cost advantage. It predominantly involves the BFSI sector and tech companies,” he explained.
Sanghavi’s previous stint was with Metropolitan Stock Exchange of India (MSEI) and he moved to HDFC Securities in the middle of lockdown.
In the current organisation his focus as the CFO is on the digital journey and creating a competitive edge in the market.
At HDFC Securities 85 to 90 per cent transactions happen digitally and traders from tier 2 and tier 3 cities have also increased phenomenally, given the telecom and internet boom, he shared. “Personalisation will be the next big thing for the industry,” he added. The edited excerpts.
Q: What is your current client share?
Kunal Sanghavi: The overall market share is closer to 10% from equity delivery perspective which is our biggest niche. As per the last reported number we are nearing 0.8 million of active traders on an ongoing basis. Essentially growing from thereon.
Q: What behaviour change in your traders have you analysed during covid times? What factors are impacting the traders’ attitude in the country?
Kunal Sanghavi: In India, as compared to globally the penetration in the equity market has been relatively low. In the US and UK, it is about 30-35 per cent whereas, in India, it is hardly 2.5 per cent.
A popular belief why India has less penetration in equity markets is that it became difficult to create awareness about it in the lengths and breadth of the country. However, on account of all the technologies being leveraged, I believe that it has become possible to reach and acquire customers on board from different parts of the country.
So we are in a green revolution into digital onboarding experience where technology is used to increase equity market penetration in the country. That as the backdrop, in lockdown everything was getting disrupted, a significant number of acquisitions by stockbroking firms, and also by large companies and this will aggravate more over a period of time.
On account of the technology post-internet and telecom boom, people have just started using the stockbroking platform more. Therefore, making technology the most important ingredient for stockbroking companies, as now you see a phenomenally high number of people trading from tier 2 tier 3 cities.
In HDFC Securities itself, 85 to 90 per cent transactions happen digitally.
Q: What is your take on India Inc’s economic recovery?
Kunal Sanghavi: The last six months were difficult due to lockdown, more importantly, because the country came to a standstill.
However, in the next six months, the economy will regain one after the other. We see slowly things coming back on track, industries will open up, because people have gotten used to living with this, wearing masks, working from home.
Also, if a vaccine is launched it will change the sentiments immediately. In the meantime, the government is making sure no credit defaults. Also, sufficient amount of credit is available for industries who are not able to work. Making it easy for companies to get back and resume operations. I am hopeful that recovery will be faster and smarter.
Q: What are your challenges as a CFO in current times?
Kunal Sanghavi: All businesses are undergoing a transformation. The way we used to do business has shifted to a lot more digital – from acquisitions to managing investments. It needs to be managed sensitively as it requires a significant amount of investment in new areas. Focusing on the larger aspects of building our competitive edge and exponential growth.
Q: What is your outlook for FY 21? Which sectors will do well?
Kunal Sanghavi: Definitely the Q3 and Q4 quarter will be better than Q1 and Q2 – an almost washout.
For the broking industries, we have doubled our profits since last year. But in India Inc, the rest of the year will be better. But there will be pain, struggle, remodelling, alignment that industries will have to undergo.
Even though this will not have a drastic impact, velocity and agility will make a lot of difference.
But important observations if you see the interest rate cycle it has bottomed up like anything and these are unforeseen rates in India. Therefore, all high debt companies will benefit a lot, because rates of interest have come down. On the other hand, all companies that are having a large debt related treasury income are going to be at a disadvantage – without relative borrowing as they are sitting on hefty cash. Compared to previous year this will be the major change.
The second important thing is over the next six months, WFH in a virtual function will change cost dynamics and demographics. Service industry will benefit much faster as compared to manufacturing to adopt virtual functioning and take cost-benefit out of it.
There is a high possibility that service industries will be able to hire people from tier 2 or tier 3 cities or any part of the country and get that relative cost competitive advantage. It predominantly involves the BFSI sector and tech companies.
Also, infrastructure companies along with banking companies will do well.
Whatever got undervalued due to Covid-19 pandemic initially will now rise. Like just after Pfizer announced vaccine effectiveness at 90% we were able to see crude prices increase dramatically and benefitting all oil companies are getting back to traction.
Q: On the other hand there is a possibility of a second wave of COVID-19, how do you see that impacting the markets?
Kunal Sanghavi: In my view, India has adopted the COVID era in a particular manner that it will not be impacted by the second wave even if it hits. People have also adapted to the new way of life and they will be able to function and manage. I have no worry because of the second wave of things and another lockdown will not be imposed. Fingers crossed! (jokingly)