Majority of economic ownership should be in the hands of Indians: Nilesh Shah

Interview with Managing director, Kotak Mahindra Asset Management

While global financial markets have recovered from recent lows, some investors are still on a wait-and-watch mode about investing in emerging markets (EMs). Some find it difficult to invest in India given excessive controls. Nilesh Shah, managing director, Kotak Mahindra Asset Management, tells Puneet Wadhwa  he expects smart, risk-taking foreign investors to look at opportunities in EMs, considering future growth and cheap valuation, while risk-averse and uninformed ones would withdraw money, looking backwards at the past performance. “Fruits of our growth, entrepreneurial success, should be enjoyed by Indians rather than foreigners,” he adds. Edited excerpts:

March saw some stability return to the global financial markets. Are we out of the woods?

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Global financial markets, especially the European Union (EU), China and commodity-dependent countries, are not out of the woods yet. It is likely that at regular intervals, events in the EU will shake global financial markets. China has expanded its credit-to-GDP ratio multiple times in the past 10 years. It is transitioning from an investment-led economy to a consumption-led one. It will provide hiccups to global financial markets at periodic intervals as a side effect of this transition.



What are the chances for Indian markets to go below their recent lows?

India seems to be an oasis in the global desert, which is devoid of growth. Our macros are strong and improving. Our markets have corrected in terms of valuation, but they will undoubtedly see volatility, especially after a fabulous March but unless a drastic event happens, it is unlikely to go below the lows seen in February.


How are foreign investors looking at EMs as an investment option? Where does India stand in their order of preference?

The experience of foreign investors in EMs has been pretty disappointing in the past five years. The MSCI EM Index is down 30 per cent, whereas the developed market (DM) index is up 19 per cent in the past five years. While India has outperformed EMs, it has underperformed DMs. At this point of time, a risk-averse foreign investor can legitimately question the investment rationale for EMs, looking at the past performance.



Undoubtedly, EMs have become cheap from a valuation viewpoint. We expect smart, risk-taking foreign investors to look at opportunities in EMs considering future growth and cheap valuation, while risk-averse and uninformed foreign investors would withdraw money looking backwards at the past performance. We expect FII (foreign institutional investor) flows to be positive for CY2016, though not at the same pace as seen in March 2016.

How do you rate the ease of doing business and policies regarding investing in financial markets as regards India? Are there any specific bottlenecks or concerns to be addressed?

We are an evolving market. We have built robust physical infrastructure for financial markets in India. Our regulators are comparable with the best in the world. At times, our frustration doesn’t take into account the constraints within which our financial markets operate. What we need to address is to keep the majority of economic ownership of India in the hands of Indians. We need to answer if 51 per cent of listed India is owned majority by foreigners through FDI (foreign direct investment) and FII investment, will India remain economically independent? The pace of growth in royalty payments to foreign parent is faster than rate of growth in profit after tax in listed companies after liberalisation of guidelines on royalty payments. This is despite the fact that many such companies have poor margins compared to their local peers.



Our entrepreneurial success should be enjoyed by Indians rather than foreigners. We need to focus our policies on increasing the ownership of listed India Inc and financial savings among Indians to ensure domestic savings are available to fund growth and we don’t depend excessively on foreign capital. We are racing against time and tomorrow might be a little late. We need to create a level-playing field between domestic capital and foreign capital.

Do you think the government and the Reserve Bank of India (RBI) are cognizant of the domestic and global headwinds the economy is likely to face? How well are we prepared?

The government, RBI and other regulators are well equipped to handle headwinds of global crisis. Our issue is whether we, as citizens of India, will back our own country. Will we reduce consumption of Chinese goods? Will we reduce buying of gold and diamonds? Will we pay our taxes properly?



What is your advice to retail investors in this backdrop?

Making money is not easy. It requires patience and discipline. Asset allocation is key for wealth creation. Regular investment is key for success in a volatile market. To retail investors, I want to pass only one message – in the past 25 years, what India has created in terms of market capitalisation, GDP etc is going to be created in the next 10-15 years. Don’t let the opportunity go away. Invest wisely.