Consolidate Group A/Cs, Dump Preferentials

Excerpts from the interview:

Business Standard: A large number of foreign brokerages and investment bankers have decided to cut down operations in India and Asia. What is the your action plan to tide over the situation?

Euan Macdonald: Most of those who have pared their operations have done so primarily because returns from the investment banking business were not good. We are committed to India, and would continuously infuse capital into the business here.

Our plan is to get into domestic stockbroking soon. In this regard, about $5 million is being brought in for our stockbroking venture with Sungrace Mafatlal. We are also in the process of acquiring the membership of the National Stock Exchange. For GDR trading, we already have FII clients and the same list will be utilised to route orders for buying domestic shares. We are active in project and trade financing and we also intend to get into bullion trading.

BS: Why have you not applied for BSE membership for secondary market operations even when arbitrage opportunities are very wide between the two bourses?

EM: When we decided to get into the stockbroking business in India, we decided that we needed to use stock exchanges to execute bulk trades. We are not too keen to have a retail network or business. Our focus will remain on the institutional business. Bulk orders would mean huge lots of shares. We wanted to avoid problems relating to share transfers. Trading in demat shares would certainly lead to more investment from the international players.

BS: What are the key issues that you feel have to be sorted out in the market through regulations?

EM: First of all, there should be compulsory consolidation of accounts of group companies. This is important for ensuring transparency in the balance sheets. Then there is a need to phase out preferential allotment of shares by corporates. It puts the investors at large at a disadvantage. The benefit that a promoter gets through his investment in shares has to be equally shared with every ordinary shareholder of the company.

The primary market in India will not improve unless there is a development of a savings market. Pension and insurance companies should be given more freedom to invest in the primary as well as secondary market. The present restriction, which forces investment by provident funds to government bonds, results in lesser returns for the investor.

BS: What inference can we draw from the successful MTNL GDR float?

EM: The success of the MTNL offering will help GAIL to make a comeback and the IOC to make its offer. The fall in the rupee has actually helped in seeking more investment in the issue. However, this does not mean that the disinvestment target will be achieved. Ideally, it is not advisable to link disinvestment to fiscal deficit.