India Growth Story Strong despite inflation

Saying that he was is positive on the India growth story, Luis Miranda, president and CEO, IDFC Private Equity, says that inflation was inevitable with the soaring crude prices. Miranda, however, said that inflation was not a major concern as India had today become a $1-trillion economy.

Miranda also feels that the capital flows are not a constraint as there is a lot of money waiting to be invested in India.

CNBC-TV18 shares with domain-b its exclusive interview with Miranda:

How are you reading the macro turf right now? We have got decent GDP numbers, but inflation is above 8%. Are you nervous about the next few quarters or reasonably confident?
There will be some uncertainty in the next couple of quarters. This is an election year so people are going to make sure that the economy does get on track before the elections.

I remain positive despite the inflation, which  was inevitable with crude prices rising to $135 per barrel. 

The India growth story is still very secure. Inflation is a problem, but today we are a trillion-dollar economy. It is going to be led by rising domestic consumption and infrastructure spending. Capital flows are not a constraint at all. There is a lot of money still looking to be invested in India. 

At the start of the year there was a lot of concern about the infrastructure sector about capital availability. Recently some  FII norms have eased a little. Do you think these efforts to ease up the capital issues for infrastructure will help?
Capital has not been the constraint; the main constraint in India is really the ability of the government to actually privatise or create more public-private partnerships.

Capital has always been available. Debt is also available, there is a huge amount of domestic debt that is available. There is a lot of equity money as well being raised for infrastructure in India.

There are just two concerns, one is the ability of the government to offer out the various concessions and secondly, is the execution. Both these are risky, so it is not the capital, which is the problem.

What is the opinion in the US about the commodity spike because it is affecting many of the companies you invest in, in the infrastructure space as well? Were people saying that this is a crazy super spike and it is a blowout stage and commodities will have to correct in 2008 or were people still chasing momentum there?
There is a lot of noise in the US and people are riding these rising commodity prices. It has to correct at some stage. There are signs, but for the short-term the commodity prices will stay where they are if not little higher but it is not something, which is sustainable over a longer period.

It will definitely have an impact on the way people look at some of these issues. We are going to be in an era where oil prices are going to be much higher than expected. I did not expect oil prices to be at $135 / bbl. This is something, we are going to learn to live with. 

The Fed is getting more involved in trying to correct some of these problems. So I think this sort of negative news is going to be there for some time but it is not going to be as long as people make it out to be. 

To come back to the macros for a second, how concerned are you about the fiscal situation that we are running at this point. Are those legitimate worries in your eyes for a sector particularly which needs a lot of capital like infrastructure?
Corporate India has learnt to live with the fact that there will be fiscal problems and that the government will crowd out corporate borrowing. Corporate India has been able to work around that. So while there is a slight cost attached, I do not think this as a major problem.

With oil prices at these levels and the farmer loans, etc, someone has to bear that cost and the question is "who?". When it comes down to the fiscal, the state government is picking it up, there will be some impact over there but I do not see this as something that is new or major, given the larger growth story in India.  

From the companies that you spoke to in the infrastructure sector, what signals did you pick up because we hear different kind of voices from corporate India in this earnings season. What is the signal you are picking up - are there real execution issues or are these companies pretty much on a blue-sky kind of track?
We have seen some reality checks happening. In 2007 there was a lot of euphoria and people ignored some of the execution risk.

That is now coming to roost and we look at across set of companies. Some companies have done better than expected, some not as good. Part of it is execution, part of it is being able to raise future capital which is more than just a procedural because of the way the markets are today and third is the ability to ramp up business.

There haven't been that many new contracts that have been privatized or set up a public-private partnership in recent times here. 

We will continue to see mixed reports from within our companies but it is good because it sort of brings in some stabilities and  some sanity into this market which we had lost track of in 2007.