Hiking Taxes Will Hit Sentiment
Euan MacDonald, chairman, SBC Warburg India and chief of the new merged entity with UBS, is of the view that while the government has promised a lot of action in the areas of infrastructure financing, entry of pension funds into the Indian capital markets and the opening up fresh avenues for investments, little has been achieved due to the bureaucratic approach. The coming budget would be a crucial one, MacDonald opines, and adds that at the current stage, any move to increase personal taxes would affect market sentiment.
In an interview with Salil J Panchal & Rajas Kelkar, MacDonald says that too much protection should not be given to the Indian industry at this stage.
Excerpts from the interview:
BS: As a foreign institutional investor, what are your broad expectations from the budget?
Euan MacDonald: There is a view that personal and corporate taxes will be raised. This will affect the sentiment at the capital markets. It would be wrong to increase the taxes on the one hand, and seek to get the retail investor back to the markets. The government should hopefully address the issue in a proper manner.
I am not of the belief that too much protection should be granted to the Indian industry at this stage. Further, the entire operative machinery of the centre with the state, with regard to clearances and permissions, needs to be made considerably easy. This is an issue which continues to affect most foreign institutional investors. The process of reform must not slow down.
BS: How do you expect any major revival at the capital markets to take place?
EM: One of the main factors why liquidity at the markets has been affected is due to the fact that the larger pension funds and insurance houses have still to make their entry into the markets. There must be a move to create an atmosphere where large insurance players channelise the huge, untapped domestic savings into the markets. Merely allowing foreign investors to take a minority stake in companies is not enough.
The large insurance players are here but they are waiting for the go-ahead. The government has now allowed foreign investors to invest in the t-Bills segment but this window is too small.
BS: What are the factors responsible for the debt markets to take off in a major way?
EM: The progress has taken place but it is too slow. The government must allow for investments in private sector debt and greater underwriting opportunities. The management of institutional savings is crucial for a vibrant debt market.
The truth is that if you cannot deal, one cannot manage. UBS has a dedicated debt fund of $ 50 million but even this amount has not been fully invested over the past year due to lack of avenues for investments.
BS: What is the structure of the new entity formed after the merger of SBC Warburg and UBS?
EM:The newly merged entity of SBC Warburg and Union Bank of Switzerland (UBS) will kick off Indian operations in June. The final approval was signed last week in Switzerland.
The thrust for the new entity will be focused around stock broking, project finance and international securities operations. The new entity will form part of the Asian framework. Further, the divisional reporting side will remain strong. There will also be line reporting within our own divisions along with information links with our Singapore and London offices.
The domestic brokerage operations will be carried out through the existing broking facilities of UBS (which holds two broking seats through BSE and NSE memberships).
UBS has been rated amongst the top five foreign institutional investors (FIIs) since commencement of operations.
While the project finance advisory activities will revolve around deals linked to infrastructure projects, the international securities segment will focus on the debt market operations, convertible bonds and private placements.