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“My ideal for home financing in India is a home-owner in Japan funding an aspiring home-owner in India,” Deepak Parekh said, as part of his creative suggestions to meeting India’s funding shortages in housing and infrastructure.
“Retail Japanese investors crave safe, high-yielding investments. In India, there is an acute shortage of housing. Funding retail mortgages is a relatively safe business and historically, non-performing loans have been extremely low. Thus, an ideal financial instrument would be using Japanese retail funds to fund a pool of home loans in India,” Parekh, Chairman of HDFC, explained, at a conclave on capital markets held here by business school ISB.
He noted that the Indian stock markets rely overwhelmingly on foreign institutional investors. It is estimated, he said, that if one takes into account the ownership pattern of free-floating shares one the BSE 100 (that is, excluding promoters’ shares, who are reluctant to sell), FIIs control 51 per cent of the market. By excluding the less-liquid retail segment, the FIIs dominate close to 70 per cent of the markets. It is, Parekh said, “as if we have exported our capital markets.”
Given that the capital markets are dominated by this single group of “fickle” investors, he said this strengthens the case for more participation by domestic institutional investors to balance the effect, particularly the EPFO (which manages the provident funds of the salaried class and has a corpus in excess of Rs 6 lakh crore) and insurance funds (whose assets under management stand at Rs 20 lakh crore).
With Japan recently announcing its monetary easing plans, and possible easing soon by the European Commercial Bank and China, the financial world will be awash in liquidity seeking high-yielding, riskier assets in the next few years.
India should reform its debt markets instead, Parekh said, and direct foreign investments to this segment. Collaboration is particularly possible in Asia, he noted, where 40 per cent of the world’s sovereign wealth funds are based.
Parekh said the country should be looking at GDP growth within the range of 5.5 to 5.9 per cent this fiscal. A lot needs to be corrected, he said, before India can return to happy days of 6.5-7 per cent annual GDP growth.
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