‘We need to get retail investors back’

Chairman of Edelweiss Capital Rashesh Shah believes that development of corporate bond market in India would be the single most important factor for meeting India’s investment needs. Viewing it as a huge investment opportunity that would finance the credit needs of our growing economy, he pegs the growth of the corporate bond market in India to 4-5 times its present value in the next three years.

You had earlier said you will be evaluating your stand on applying for banking licence. What is the latest update on that?

We are looking for clarifications on the same. RBI has got about 300 queries in response to its guidelines. RBI had invited questions from people till April 10 and people have asked lot of questions on structure, current NBFC business, SLR and CLR, etc.

Once the clarification comes, it becomes easier to structure your application and think about it.

I think most people will wait for the clarification. Guidelines being guidelines are not self-explanatory and each of them has a nuance to answer. So, we have to see the clarifications for not just the questions that you have asked, but also questions asked by others as that can also impact your own structure or business model.

In the beginning of the year you said FY13 would be the year of equities. What is your view now?

I still think it will be a year of equities because of global liquidity being the way it is and other asset classes such as real estate and gold have done very well for the last three years but should slow down. Gold already has corrected quite a bit. So, this will be a year of equities globally and India will have its share. But for India, on a long-term basis, we still have to see investment activity coming back. We are hopeful on interest rates coming down in the next couple of quarters.

Our view is that there will be 50-75 bps rate cut this year but it will be small and staggered as RBI will do the same thing on the down side.

What forecast do you have on the development of debt trading market in India after the recent launch of the country’s first dedicated debt platform on the NSE?

We are hoping that the bond market growth happens in India, as I think eventually for investment needs, the development of bond markets is most important. The NSE wholesale debt market is a small step in this direction. Currently in India, about 95 per cent of the credit flow happens through the banking sector and only 5 per cent through the bond market. But our view is that this should become a 75:25 ratio.

How has your credit segment business grown and do you plan to scale it up further?

We are fairly big in the bond market if you look at from an arrangers point of view. Half of our fee and commission income is through the bond market and the rest half through the equity market.

Are you concerned about lack of market depth, given that recent rallies have continued to witness FIIs buying and DIIs selling? What is the solution?

This has been a problem in India. We need to get retail investors back and get household saving assets into financial assets of equities and bonds. The trigger for that will be falling interest rates, as when interest rates come down, inflationary expectations come down.

Optimism would be the second biggest trigger as, to invest in equities and bonds, one needs to feel positive about the future. If the investment growth comes back and the economy starts inching up, we should see retail investors coming back.

What is your view of the recent improvement of WPI for April coming at a 40-month low of 4.86 per cent?

For the first time in four years, the GDP growth rate is higher than the inflation rate as current GDP rate is about 5.5 per cent and inflation is at under 5 per cent. Until now, inflation rate was 7-8 per cent and GDP growth rate was 5-6 per cent, so its recent reversal is the first positive that I see. But it should be sustained and maintained, and may be, part of the market optimism that you are seeing now is reflective of that.

Do you think growth has bottomed out? What key risks or pain areas remain in terms of macro fundamentals?

I do feel growth has bottomed out and won’t fall any further. But, how fast it goes back up is the key question now. The only concern on the macro fundamental front is the high current account deficit which continues to be a cause of worry for the markets.

>manisha.jha@thehindu.co.in

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