With the secondary market improving, as seen from the rising Sensex, the new government can take certain steps to revive the capital markets to provide capital for higher growth. Gold, real estate and insurance selling is far more attractive than selling equity IPOs, mutual funds, NPS and bonds. Financial products are mostly sold. Intermediaries need to be adequately incentivised to convert physical savings into financial savings. If we stop importing gold, our reliance on foreign investment will come down dramatically.
If you invest in equity on a regular basis and for the long term, it outperforms other asset classes by a wide margin. Hence, retirement funds must be mandated to invest in equities. By definition, they will invest for the long term on a regular basis.
A large segment of the economy pays a very high cost of capital. Availability of reasonably priced credit through the formal route of banks and non-banking finance companies, or the informal route of microfinance institutions and credit societies, will reduce rent-seeking in the economy, lower inflation and bring forth entrepreneurship.
Global investors have concerns over our peers such as China (slow growth and credit bubble), Russia (Ukraine crisis) and Brazil (weak macros). We need to market India correctly to global investors to garner as much risk capital as possible. Perceptions related to investor unfriendliness need to be removed through appropriate marketing.
Infrastructure financing requires long-term debt (apart from equity). Vibrant bond markets are necessary to provide long-term financing. We need to encourage financial innovation to make our bond markets vibrant. Tax incentives (tax-free bonds, IT exemptions, etc) are distorting the investment pattern and resulting in subsidies to an undeserving class of investors. These need to be rationalised to ensure that distortions in financial markets are ironed out.
Nilesh Shah
Managing Director & CEO, Axis Capital Ltd
Managing Director & CEO, Axis Capital Ltd
