The Hindu Business Line : `A bounce-back can be expected'

"WHILE nothing has changed fundamentally in the Indian market, one must realise that we are closely integrated with global markets and, therefore, affected by corrections elsewhere". That was Mr Sushil Muhnot, MD, IDBI Capital Market Services, dwelling on an issue that is obviously baffling a lot of people these days.

In an interview with Business Line, he also refers to changes in IDBI Cap's business profile, especially to the company's plans on increasing non-fund based income.

Excerpts.

What has changed so as to create this negative sentiment on the equity front?

The market is in a correction mode. If you look at the last three years, there was a sustained rise from April to December 2003, which was followed by a correction till about May 2004. There was another rise subsequently, which went on till January/March 2005. This is now being followed by a correction. All this is quite healthy for the market.

Other factors like rising interest rates in the US and views on crude oil prices must be mentioned. These affect our market from time to time. The recent correction of over 200 points has been driven mainly by the weaknesses spotted in foreign economies (mainly US) and the lower-than-expected results/guidance by the IT bellwether and certain other technology companies. A bounce-back can be expected once good results start pouring in.

The debt scenario is fairly listless. What can drive changes here?

Yields are expected to be volatile during the year. Remember, surplus liquidity is estimated at Rs 1,00,000 crore, while the Government's borrowing program is large at Rs 1,65,000 crore. Credit offtake in the economy is likely to remain buoyant.

Global interest rates are expected to be on a continued upswing. In fact, the US is expected to hike interest rates to 3.5-4 per cent before taking a pause. Supply of paper is expected to exert upward pressure on yields.

As for the monetary policy of RBI, we do not expect a rate hike. Incidentally, economic growth expected to remain buoyant in 2005-06. Meanwhile, concerns over crude and commodity prices remain. And with a sharp rise in US interest rates, the rupee may come under some pressure.

What are IDBI Cap's expansion plans?

Generally speaking, we are targeting an increase in our fee-/commission- based income. Our original business has been primary dealership in government securities. With interest rates moving northwards, we worked out plans to diversify our undertaking.

The company is currently active in equity broking, mutual fund distribution, pension/PF funds management, secondary market equity operations and retail sales of bonds and IPOs. We now propose to enter retail distribution of MFs, for which we will be expand geographically to 22 major centers.

IDBI offices will be used for this purpose. This would enable greater co-ordination with agents - those who are currently marketing bonds and IPOs. They will also sell MFs after obtaining AMFI certification.

IDBI Capital has started investment banking operations after its parent outfit, IDBI, decided to shift its own investment banking business to us. As capital expenditure of corporates has started building up and potentially viable companies are improving their operations, there is a great demand for investment banking services.

We are further enhancing our secondary market equity activity keeping in view the current buoyant conditions. In fact, a senior fund manager has been signed on for this purpose.

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