The Hindu Business Line : `Create a stronger domestic institutional base'

DSP Merrill Lynch is one of the leading investment banks and investment advisory firms in India. Its Joint Managing Director, Mr Amit Chandra, feels that FIIs inflows to India would continue this year. He feels that despite interest rates rising in the US, foreign inflows in India would continue in the long term.

However, merger and acquisition activities might slowdown in 2005 in the absence of paucity of quality acquisitions.

Excerpts:

After a great year for capital markets in 2004, how do you see 2005?

We believe 2005 will continue to be a strong year for the Indian market on account of a number of reasons: a) continued positive macro economic environment; b) India continues to stand out globally on a relative basis amongst alternative investment destinations; and c) Indian corporates are continuing to make significant progress.

Returns, however, might be relatively subdued on account of the significant rally that has already taken place and also due to the somewhat muted inflows into equity in global emerging markets.

Also, it is quite likely that while the direction will be positive, we will see a lot of volatility on account of extraneous factors such as oil prices and movement in the dollar.

Several Indian companies listed in the US markets are going for sponsored ADS, but there was hardly any fresh listing in 2004; what reasons would you attribute to this? Most leading Indian companies are currently well capitalised and will require primary infusion only if they take up expansion beyond what is currently easily achievable using their balance sheets and cash flow.

With everyone bullish on growth and most having financial flexibility, it is no surprise that primary listings are not increasingly significantly. The sponsored ADRs are a great way for companies to raise profile as well as enhance shareholder value on account of the differential between US and local valuation, and therefore a number of leading companies have been focusing on this route.

What kind of policy or fiscal measures the Government can announce in the Budget which could give further fillip to the capital market?

I think the Government has already done its fair share for the capital markets and its measures have had the desired effect. Apart from one or two issues, I don't think its fair for capital market players to expect a lot more sops from the Budget.

It would be great if the Government continues to focus on fiscal, tax and industrial reforms, which will make the environment more conducive for business and investment.

The one critical area the Government must focus on is the need to create a stronger domestic institutional base for equity investment. While it is great to see FIIs invest more and more in India, the need of the hour is to provide a stable domestic counter balance. This needs to be done by allowing pension funds to invest in large cap equity, incentivising banks to make use of available limits, and providing some incentives which will make domestic mutual funds a more attractive route relative to direct investment in markets by retails investors.

If the interest rates increase in the US in 2005, how do you see its impact on inflows to India and other emerging markets?

As mentioned earlier, I expect 2005 to be a lot more volatile year and one of the reasons for this will be movements in the dollar. The dollar in turn will be impacted by the US interest rates and we could see temporary reversals in flows into equity markets when rates rise in the US. However, I don't think there is any threat to the long-term direction of flows into India and other fast growing emerging markets. Money will always flow to markets providing superior growth with reasonable protections and India is ranks highly amongst such global markets.

Recently, ML had annual conference in India for its clients. How do you see investment scenario in India post the conference.

The tremendous response to our conference and flows of over $1 billion in the last month confirm our hypothesis that India will continue to attract strong interest from foreign portfolio investors through this year. The bigger issue in my mind is whether domestic investors will exhibit their faith in the India growth story, or will chose to watch from the sidelines.

The best bet for the market would be if we attract flows from both sets of investors in an orderly way, before the market gets ahead of the story.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
How about the idea of a fixed-maturity equity fund?

Retirement savings planning in India - still at nascent stage

Gulf NRIs seek nod for direct trading in Indian shares

Ends on weak note

As Budget day nears — It's cautious optimism on Dalal Street

`There's nothing so habit forming as money'

Investment in ARCs — Regulatory structure likely for debt FIIs

SEBI imposes cash penalty on Xedd Telecom

`Create a stronger domestic institutional base'