 "Mihir Doshi")
Mihir ‘Mickey’ Doshi, managing director & chief executive officer of Credit Suisse, India, has over three decades of experience of having worked in two of the biggest foreign institutional brokerage houses – Morgan Stanley and Credit Suisse. While he sees India as a ‘bright spot’ amid the global chaos, he tells Joydeep Ghosh and Tinesh Bhasin that the Brexit impact has still not been priced in. Edited excerpts:
With the National Democratic Alliance government recently completing two years, what changes at the ground level have you seen?
As an investment banker, I deal with a cross-section of companies and investors. One example of a change I have seen over the past two years is that the Indian stock markets are more buoyant and are attracting capital. That is partly perception, partly hope and partly due to growth in certain segments.
Another example of visible change comes from my conversations with entrepreneurs. In the past, they say, they had to go to Delhi to get permissions from six-seven departments; now, it seems, things are getting done much quicker, with less bureaucracy. A lot of changes, though, are not visible yet in cities such as Mumbai or in other urban areas. For example, the infrastructure in Mumbai or other areas has not improved and the direct impact of the Jan-Dhan Yojana is not being felt in urban areas. It will take time for the changes to filter down to cities, as these are not changes that will happen within the next 12 months; rather, it might take an entire generation to see tangible results.
With the National Democratic Alliance government recently completing two years, what changes at the ground level have you seen?
As an investment banker, I deal with a cross-section of companies and investors. One example of a change I have seen over the past two years is that the Indian stock markets are more buoyant and are attracting capital. That is partly perception, partly hope and partly due to growth in certain segments.
Another example of visible change comes from my conversations with entrepreneurs. In the past, they say, they had to go to Delhi to get permissions from six-seven departments; now, it seems, things are getting done much quicker, with less bureaucracy. A lot of changes, though, are not visible yet in cities such as Mumbai or in other urban areas. For example, the infrastructure in Mumbai or other areas has not improved and the direct impact of the Jan-Dhan Yojana is not being felt in urban areas. It will take time for the changes to filter down to cities, as these are not changes that will happen within the next 12 months; rather, it might take an entire generation to see tangible results.
But things are yet to improve like improvement in manufacturing numbers…
How will manufacturing grow? Private sector spending has reduced from the last decade which has hampered the growth of manufacturing. However, growth can come from foreign corporate investment; for example, there have been the recent encouraging announcements from companies such as Apple and Foxconn. I would have been happier to see changes in the divestment side. This is a problem which has existed with all governments because disinvestment is viewed as selling off the crown jewels. But the US$8 billion sale of the SUUTI stake in various companies has been declared recently and it is a good sign. I believe that all governments know what needs to be done, but the process has been hampered more due to the execution rather than due to ability.
Given this optimism, what key deals have you seen happening in the past year?
Credit Suisse was number one in India in terms of ‘share of wallet’ in Q1 (April-June quarter) of 2016. What have we seen happen? The largest inbound strategic investment in the power & utilities sector over the past five years, with Tenaga Nasional Berhad from Malaysia buying 30 per cent of the assets of GMR. The largest investment in the Indian telecom infrastructure space, with American Tower buying a 51 per cent stake in Viom Networks. One of the largest PE (private equity) exits in the automotive-related sector globally in recent years, with the sale of KKR’s 100 per cent stake in Alliance Tyre Group.
In equities as well, Credit Suisse is one of the leaders in India. We just advised HDFC Ltd on the first ever ‘masala bond’ (rupee-linked, to offshore investors) issuance from an Indian corporate. The view, therefore, is positive. However, people are also waiting for initiatives such as ‘Make in India’ to translate into entities actually coming and setting up manufacturing capacity here. In the next couple of years, time will tell. But, the positive change in perception about India has resulted in capital flow.
The kind of manufacturing that we are getting is low-end – much like China. Is it a good thing?
If it is generating employment, then that’s a good thing. There was a time when India was a leader in garments, but then all of a sudden, we started losing capacity to Bangladesh and Vietnam. Subsequently, India started to move up the value chain a bit and made some progress. For example, today, India is among the largest towel manufacturers in the world. We need to play to our strengths. Earlier, companies such as Nissan and Apple were manufacturing in China and making it their global hub. Now, Apple and others are looking at India. Imagine if Apple sets up a manufacturing unit in India in the next 18 months, the reaction would likely be positive.
What are our key challenges?
Creating jobs. It’s not capital, it’s not grey matter, for sure. India’s biggest challenge is employment. The banking sector is another challenge. While the process of cleaning up the sector has been put in place, it could take up to three quarters or a year, at least. The process, by itself, is irreversible. Another challenge is investment. Since large groups don’t have the money, public sector spending needs to step up and people are hoping it happens.
Before Brexit (the British vote to leave the European Union) happened, there was over-cautiousness. Now that it’s over, everyone is over-enthusiastic, due to the absence of a serious impact. Do you think the impact of Brexit is over?
From extreme caution to being in a state of ‘let’s move on’, the reactions to Brexit have been quite extreme. I think the repercussions aren’t over. Given the way global bond yields are falling, people think global growth is a question. Things are likely to get tougher.
What will be the impact on India?
As of now, we believe the Indian market is a bit rich. A lot of it is being driven by liquidity. One impact could potentially be a drop in liquidity. If the US does raise rates, liquidity will dry up a bit and markets could be negatively impacted.
How important is passage of GST (the proposed national goods & services tax)? Is it more of hype?
While economists will know better, I think it is more like a flag which is being waved to gauge the success of the present government. The present government realises it, too, and is moving towards it.
Will the Mauritius, Cyprus treaties impact inflows?
While I have not been following it closely, I think people are concerned and trying to think through the impact. There are three reasons why people use P-notes — tax in this country, confidentiality and ease of settlement. I think if the tax part is handled, the rest should fall into place.
What is your overall outlook for the Indian market?
In my view, the India story remains relatively intact and I maintain a positive outlook for the near term. I am optimistic that the efforts being made by the Government will bear fruit, and would certainly like to see some of the key elements in place – such as more private sector investment to create employment, growth in manufacturing and further disinvestment – that will be essential to maintaining the pace of growth of the Indian economy.
