Amish Mehta, analytics and rating agency CRISIL’s new MD & CEO, has worked across sectors. He has had stints with mobile tower company Indus Towers, lubricant maker BP/Castrol India, global consultant EY India, and oil and gas major ExxonMobil India. A chartered accountant by training, Mehta joined CRISIL, an S&P Global company, in October 2014 as President and Chief Financial Officer, before being elevated to President and Chief Operating Officer. Last October, he walked into the corner office at CRISIL’s Mumbai headquarters. In an exclusive interview with Business Today’s Sourav Majumdar and Anand Adhikari, Mehta discusses his mandate, the road ahead for the country’s largest rating agency and the current state of affairs of the economy. Edited excerpts:
Q: You have been the MD and CEO of CRISIL for seven months. Tell us about your mandate and the focus areas.
A: It is a huge responsibility. CRISIL, as an institution, is making markets function better by the way it touches various organisations, stakeholders, and the work that it undertakes. There is a huge responsibility to ensure that we are able to make that impact. We are able to do things that our stakeholders value, whether it’s our customers across institutions, buy-side and sell-side firms, investors, government regulators, large global conglomerates, [and] the spectrum of corporates and institutions we deal with. It’s our ability to connect the dots and put the intelligence out, whether it’s data, research, ratings and benchmark.
Q: How does a company like yours, which is in the business of forecasting, deal with the fast-changing operating environment?
A: It’s a good dilemma, to be very honest. In fact, when the pandemic hit us, we were looking at doing forecasts virtually every month. I’m talking about macro forecasts. The scenarios were changing depending on the level of the lockdown. Imagine a national lockdown where everything was shut.... There is no way you can predict what is going to happen. There was no vaccine at that point in time. We have also improved our thought process in terms of how we forecast, but I would say it is a dynamic environment. The cycles are pretty short. In terms of projection, everybody puts out a forecast based on assumptions, saying that these are the base assumptions that we work on. An example is our current forecast for GDP [growth in FY23] at 7.8 per cent. We said it’s based on crude oil prices of $85-90 a barrel. Current crude oil prices are around $100 a barrel. We are hoping that the current crisis will end in a shorter time frame. But if it gets prolonged and crude prices remain above $100, the 7.8 per cent forecast has a downward bias.
Q: Do you believe inflation is the single most significant unknown at this point in your forecast?
A: That’s clearly one of the biggest factors, which is uncertain at this point in time. Our forecast for CPI [consumer price index-based inflation in FY23] is 5.4 per cent. It is largely a given that [prices of] commodities like crude oil will remain high. We see that continuing for some time with the current geopolitical crisis and lockdowns in China. We need to monitor what happens to capacities on the metal side and on some of the agri-commodities [side], especially edible oils, wheat and maize, which are coming from the Russia-Ukraine belt. I think we will see some impact on account of that on commodities and energy, which has a bearing on India, because we are a large importer of crude oil. Our crude basket is higher than what we had forecast. I think that should have a play on inflation. Most companies are already passing inflation [on to consumers]... which means retail inflation will go up. I think we are fortunate that food inflation has been managed well in the country as compared to the global market. I think agriculture as a sector has done well, and that helped us manage the inflation well. Historically, in the years when crude prices were above $100 a barrel, you would typically see inflation in double digits. I think because of food inflation being managed, we are seeing retail inflation somewhere in the 5-6 per cent range. That is a risk, and it is an important monitorable. We will, of course, see interest rates rise, possibly having an impact. There will be an impact on the demand side as well.
Q: What are your takeaways from the kind of business confidence that you see at this point because of the geopolitical conditions?
A: I would say that the last two years have been quite unpredictable. Every time you feel that things are going to improve, you get hit with something or the other. We have already seen three Covid-19 waves. And then, as we were expecting things to stabilise after the third wave, we saw the geopolitical crisis coming in. From a demand perspective, urban households have been doing well. We did a survey of the salaries of large companies… [and] saw an increase in the payout. If you look at large IT companies, service exports have done well. The pandemic has had less of an impact on urban households than it has had on rural households. In the rural areas, the self-employed, contact-based industries, SMEs, etc., have seen destruction of demand. It has taken them time to come back. Government schemes like the Emergency Credit Line Guarantee Scheme (ECLGS) have helped. We are seeing a revival in contact-based industries. It should augur well if people start travelling.
Q: What is the feeling in corner rooms?
A: We have seen a lot of deleveraging at the larger corporations. If you just look at the credit ratio that we released recently, we were above five, which means your upgrade-to-downgrade ratio is skewed towards upgrades versus downgrades. There are multiple reasons for that. Demand is coming back post the pandemic. The deleveraging of balance sheets has improved. It augurs well for companies to be able to set themselves up for better credit growth and drive investments. Large corporations are in a good place to take advantage of the economy opening up, whereas the SMEs and the self-employed will take some more time to recover.
Q: There is a lot of talk about the lack of private capex in the economy. What is holding private capital expenditure back?
A: If you look at the last few years, private capex has lagged as compared to government capex. The investments have been driven by both the central government and state governments. A key reason for private capex lagging has been the [low] capacity utilisation across sectors. We have seen capacity utilisation below [the level] that would trigger new investments coming in, other than for sectors like steel and cement, where we have seen 75-80 per cent to maybe 70-75 per cent capacity utilisation. [But] most segments have seen below 65 per cent capacity utilisation. And that’s a reason why you have not seen private investment pick up in the last few years. But it’s likely to change with the production-linked incentive (PLI) schemes and some [other] schemes announced by the government, and demand and consumption picking up in the economy. We expect private capex to start seeing momentum going forward.
Q: Do you think globalisation as a concept is under threat with the Covid-19 outbreak and the closing down of economies, and now the Russia-Ukraine conflict?
A: I wouldn’t say globalisation is under threat, but I would say, clearly, business continuity will be re-evaluated. We moved from an era where we were dependent on, let’s say, one global-scale manufacturing plant… because that was the cheapest source available to you across the world, to now thinking about what would happen if something happens to that plant or place, and you are unable to source [your materials].
So, should you diversify and have two or three other options available? I would not necessarily say that people or companies will move away from globalisation because they are still going to look for alternative sources, but not necessarily in the countries where they are operating [in], or they are consuming. I think globalisation is here to stay. That is not going away, but what will possibly change is that instead of depending on a sole supplier because of the benefits the supplier provides, [a company] may go in for a slightly more expensive alternative source. A company will not depend on one supplier or one country... it would have its footprint in the supply chain in two or three countries, from two or three different sources. Today, you are going to think about your business continuity plan, because a pandemic was something nobody expected. It tested the business continuity model of every organisation, of governments, and of institutions. Every business has undergone a transformation in its supply chain.
Q: Do you see India gaining as corporations diversify their manufacturing plants or sourcing bases? In the aftermath of the Covid-19 outbreak, we had heard that the supply chain would shift from China, but nothing much seems to have happened on the ground.
A: It’s not easy to shift supply chains. I think the shift is a long-term thought process. Once you decide to relocate and plan the supply chain in a particular country, you need to think through the entire value chain. If you want to set up a plant, for instance, a global car manufacturing plant, then you have to think about all the things that go into the car and where they are going to come from. How do they reach [the plant]? How do you plan for that? How do you set up the entire ecosystem to be able to create that manufacturing capability and be competitive, and be able to deliver the value and the quality? How do you get from there to the markets you need to serve? So, you are looking at the entire value chain and planning or repurposing. It is a huge strategic exercise. It needs to be thought through. It cannot be done overnight.
I think what India is doing [is that it is] at least positioning itself right in the global economy. We are offering our ecosystem to set up capabilities, or manufacturing plants, or supply chains in India. I think the government’s ‘Make in India’ [initiative] is designed to create that environment so that global companies, when they start thinking about the supply chain, look at India as a very good alternative. And the way to make it really compelling for these organisations is to think long-term. Because when you are investing at that scale, you are thinking about 10-15-20 years from now, when the plant should really deliver you that value. We might not have seen immediate announcements, but work might be happening in the background. It will take a few years for you to see those investments hit the ground. I’m sure India is being considered by multiple organisations as an alternative for their supply chain. You should see things playing out in the years to come.
Q: CRISIL also has global linkages in terms of supporting global corporations. Can you elaborate on the business part?
A: Sixty-five per cent of our revenues comes from global clients, which means two-thirds of our revenues come from global clients, global banks, global institutions, global investment firms, and also a few corporates. The work that we do supports them with their research, risk, regulatory requirements, data and analytics. We have a firm that is doing benchmarking for investment banks, helping them understand their competitive positions where they are on the investment banking side, in the league tables. We have acquired a company called Greenwich [Associates], which does voice-of-customer surveys, which allows you to get qualitative inputs on how things are playing out… We have a host of offerings on the global side.
And if you look at global trends, [a] big one is sustainability. Everybody’s talking about ESG [environmental, social, and governance]. That augurs well for us, which means they want our help in getting data on ESG. They want help on getting research on ESG. They want support on looking at how to build models for climate risk evaluation; how to build models for lending money while factoring in ESG parameters. So, all of that is something that helps us drive demand on the global institution side, under the sustainability lens.
The next big trend is on the risk and regulatory side. If you look at the large global banks, the amount of money they are spending on regulatory requirements and risk compliance, I think that’s a huge demand driver for us, which means we can support them in meeting the regulatory requirements. We can help them meet the risk requirements. They are looking at transforming processes to meet the risk requirements and compliances. We are partnering with them to meet those requirements, whether it’s on the data side, whether it’s on the research side, whether it’s on the analytics side, or whether it’s on the process transformation side. I think there’s a huge opportunity.
The third trend is digitisation. Today, every large bank is looking at digitising internal processes or their customer-facing applications. And that again means an opportunity for us because of the domain knowledge that we have come up with. We are a key enabler for banks on their automation agenda, on the transformation agenda, and we partner with them on the risk and regulatory and research requirements.
Q: You have morphed into a consulting firm from a ratings firm. Do you think that’s becoming a major business opportunity?
A: We are still the premier rating agency in India. We call ourselves a global analytics company because the DNA of the organisation is analytics. We are rooted in analytics, whether we are doing ratings, benchmarking with big research, or supporting global clients on their research, data or analytics requirements. I think as an organisation, we pride ourselves in calling ourselves a global analytical organisation. And I think we underpin whatever we are doing with data, research, and analytics. That is our core.
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