We Should See Early Re­vival of Pvt Investment

The Economic Times - - The Uday Kotak Interview -

In­dia presents prob­a­bly the best op­por­tu­ni­ties among global markets, but the risks to those ma­te­ri­al­is­ing are high be­cause of the changes in the West that are un­der­min­ing lib­eral eco­nomic and po­lit­i­cal val­ues, Uday Ko­tak, ex­ec­u­tive vice-chair­man and man­ag­ing di­rec­tor of Ko­tak Mahin­dra Bank, tells Saloni Shukla and MC Go­vard­hana Ran­gan. Ko­tak was speak­ing at Ko­tak Institutional Equities, an­nual global in­vestor con­fer­ence — Chas­ing Growth 2017. Edited excerpts:

How are you read­ing the change in pol­icy stance by the cen­tral bank? I think the most im­por­tant point, as I see in the mon­e­tary pol­icy, is that we are mov­ing to a neu­tral po­si­tion. I think that is even more im­por­tant and re­flec­tive than the fact that there has been no de­crease in repo rates. A neu­tral po­si­tion in my mind has im­por­tant char­ac­ter­is­tics, one is the rate it­self which can, from here on, go up or down and the sec­ond is liq­uid­ity. If the to­tal liq­uid­ity in the sys­tem is about ₹ 6.5 lakh crore, some of that will go out by in­crease in cur­rency in cir­cu­la­tion. Now, we have roughly ₹ 10 lakh crore; if cur­rency in cir­cu­la­tion goes up to ₹ 12-13 lakh crore, that re­duces sur­plus liq­uid­ity. But what does neu­tral stance mean for liq­uid­ity? Does it mean sur­plus liq­uid­ity of not more than ₹ 1,00,000 crore, or ₹ 50,000 crore, and what is the im­pli­ca­tion of that? I think there has been a lot of fo­cus on neu­tral po­si­tion from the point of view of abil­ity to move in­ter­est rates in ei­ther di­rec­tion, but the thing that we would re­ally watch out for is also what neu­tral po­si­tion means from the point of view of sys­tem-level liq­uid­ity. Be­cause it has equal, if not more, im­pli­ca­tions on where in­ter­est rates in the money markets sta­bilise. And some of that is hav­ing an im­pact on the yields as well.

What is the im­pact on growth? You have to look at growth in a slightly dif­fer­ent con­text. The key is­sue on growth in my mind is about pri­vate investment and that is where our chal­lenge is. As long as in­ter­est rates are in rea­son­able con­trol, pri­vate


investment in my view will start pick­ing up once you see bet­ter ca­pac­ity util­i­sa­tion. And, my per­sonal view is that by the end of the cal­en­dar year, we should see early re­vival of pri­vate investment, pro­vided in­ter­est rates are un­der rea­son­able con­trol.

From an eq­uity in­vestor point of view, how should they view In­dia? In­dia is rel­a­tively, from an eq­uity in­vestor point of view, in a sweet spot. Our macro is in good shape, we are less de­pen­dent on the world other than IT and pharma. We are much more a do­mes­tic econ­omy and in­vestors like that. I be­lieve for­mal do­mes­tic sav­ings plus global sav­ings should be in In­dia’s favour.

With Trump tak­ing charge, do you be­lieve that the es­tab­lished world eco­nomic or­der is chang­ing? If you see post-World War II, the first mega trend you saw for a pe­riod of 35-40 years was the So­cial­ist-Com­mu­nist model and that model peaked in the 60s. In the early 70s, the world started see­ing early trou­ble with this mega trend. And by the end of 70s, coun­tries be­gan to move away from that model. The sec­ond mega trend started in 1985, where mar­ket­based econ­omy, eco­nomic lib­er­al­ism and glob­al­i­sa­tion be­came the mega trend — from mid-80s to 2015. Peo­ple, who saw the sec­ond mega trend, know that the Com­mu­nist-So­cial­ist or­der doesn’t work in the real world, be­cause as you fo­cus dis­pro­por­tion­ately on dis­tri­bu­tion of cake, you’re de­stroy­ing the growth of the cake. The ques­tion now is if 2016 is a turn­ing point for the next mega trend?

What is the next mega trend? The mega trend is back to pro­tec­tion­ism and anti-glob­al­i­sa­tion. There­fore, whether it’s Brexit, whether it’s Trump or what you see in Europe is that the be­gin­ning of a mega trend, which is the mega trend 3. The big­gest dis­cus­sion at Davos (World Eco­nomic Fo­rum) was about this mega trend 3. At this stage, the world view is that this is noise and not the mega trend 3. Peo­ple are say­ing this is 3-4 years of noise, but ul­ti­mately, peo­ple will re­alise that the mega trend 1ac­tu­ally did not lead to pros­per­ity. Now, this is hope. You know when a trend starts gain­ing mo­men­tum, it’s not con­trol­lable.

How do you think In­dia should han­dle US Pres­i­dent Don­ald Trump? I am sure that In­dia has got a strat­egy for it … But I have heard that com­pa­nies like (Chi­nese ecom­merce gi­ant) Alibaba went and met Trump with some of its ad­vis­ers who had deep re­la­tions in the US and who they had hired well be­fore. I be­lieve (Alibaba’s chair­man) Jack Ma met Trump on Jan­uary 9th … In­dia is do­ing gov­ern­mentto-gov­ern­ment di­a­logue. In­dia re­ally needs to get the right set of pri­vate sec­tor — may be non-res­i­dent In­di­ans who may al­ready have link­ages and have sup­ported him. That could be a good route.

You spoke about in­vest­ments re­turn­ing by the end of the year, but the RBI and even the Eco­nomic Sur­vey talked about the twin bal­ance sheet prob­lem (stress on both banks and com­pa­nies). So, how does it change by the end of the year? One of the big­gest chal­lenges in In­dia con­tin­ues to be how you man­age the is­sue of stress on bank bal­ance sheet which has been there for a long time. We have talked about it year af­ter year and it has not im­proved. My view is that as re­gards to stress, what­ever has got into the ditch is re­main­ing in the ditch. It is fur­ther com­pli­cated by some of the sit­u­a­tions which is slow­ing down de­ci­sion-mak­ing at PSU banks. If de­ci­sions don’t get taken and there is al­ways a lot of fear … and if some­thing is in the ditch, how do you get it out?

There have been re­ports about a pos­si­ble merger with Axis Bank. Is it on the cards? First, let me say that as a pol­icy we do not com­ment on ru­mours and spec­u­la­tion. The core of any com­pany is to fo­cus on value cre­ation and the abil­ity to say ‘yes’ when there is a value-cre­at­ing op­por­tu­nity and ‘no’ when there is not a value-cre­at­ing op­por­tu­nity. Our ap­proach to look­ing at any­thing is does it make sense for our share­hold­ers, does it add value, is it sus­tain­able and can we de­liver su­pe­rior re­turns to our stake­hold­ers. That is how we think about any op­por­tu­nity and ob­vi­ously it goes with­out say­ing that if there is some­thing which makes sense for us we will al­ways keep an open mind and if there is some­thing we need to dis­close to the market we will be out there dis­clos­ing it at the right time. We are eval­u­at­ing a va­ri­ety of op­tions as a bank. At this stage, there is noth­ing which we have come to a point where we think we should be com­ing out and telling you, ‘lis­ten here is some­thing re­ally great’. We are look­ing at var­i­ous op­tions across fi­nan­cial ser­vices and we are look­ing at var­i­ous op­tions for cre­ation of value for our stake­hold­ers in what­ever shape or form it comes.

How are you view­ing the fi­nan­cial ser­vices sec­tor in In­dia? I am very op­ti­mistic about fi­nan­cial ser­vices in In­dia. I be­lieve there is sig­nif­i­cant growth. The fi­nan­cial ser­vices in­dus­try in In­dia is a huge ben­e­fi­ciary of the for­mal fi­nan­cial sec­tor growth at the cost of real estate and gold. I am op­ti­mistic about fi­nan­cial ser­vices across the board — bank­ing, as­set man­age­ment, life in­sur­ance, se­cu­ri­ties and investment bank­ing. This is driven for two rea­sons. First, move­ment of house­hold sav­ings now into fi­nan­cial sav­ings and sec­ond, deep­en­ing of In­dian markets. For a mu­tual fund in­dus­try, which is grow­ing at 30%, it is a phe­nom­e­nal growth.


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