'Mutuals Set For A Turnaround'

Sanjay Jha, director, Walchand Capital, the finance company of the Walchand group, says that the NBFC market would undergo a further restructuring and would be left only to a few large players. In an interview with Business Standard, he said mergers and acquisitions(M&A) will look up and corporate advisory services will be much in demand along with private placement of debt. Jha also feels that the mutual funds industry is set for a turnaround in the coming six months, and the future for the industry is also bright despite the occasional hiccups. Walchand Capital is restructuring its operations, and plans to focus on merchant banking-related activities, while moving out of the public deposits, leasing and lending segments. Excerpts from the interview:

 

How do you view the capital markets scenario?

We have seen the markets move through a major transition. The merchant banking industry has become concentrated, and only the larger players will survive. In the secondary markets, we have seen it evolve for the institutional players with the pure retail investor staying away. It has also become more globalised and vulnerable to external events.

All these factors mean that the fundamentals of buying have changed.

Within this scenario, I feel that the Indian markets are getting set to witness a major turnaround of the mutual fund industry. This should take place by the end of this year or the first quarter of the next year. This is a sector which is maturing fast.

Though the current buying interest may be limited, the industry is slowly witnessing product variations through different schemes for different investors and higher incentives while making entry/exit norms easier and disclosure norms stringent.

What would be the trend over the short-term?

Capital advisory services will play a larger role in the financial services sector in the future. Alongside, mergers and acquisitions will also become a crucial area of operation. So will the opening up of the insurance sector. Players who are looking at making a presence in the insurance and mutual fund industry will need to have a wide distribution network.

What will be the focus of the new operations being planned at Walchand Capital?

The group is looking at two options. One would be the internal restructuring plan to move out of short term financing and lending activities which were being carried out earlier but retain the same entity.

The second option would be to create a new company which would look at pure merchant banking activities. The focus of operations will shift to debt/equity structuring and wholesale placement of debt. The legal department will decide on the issue in the coming weeks. The company is currently in talks with several US-based investment banks for a joint venture. We hope to finalise a deal soon. We plan to become a player with a strong regional focus in the Maharashtra, Gujarat and Karnataka regions.

Does this mean that the scenario for NBFCs has become bleak?

The smaller players will be and have been left to the sidelines which is good for the industry. The industry will be left only to the larger players like ICICI, GE Capital, Kotak and Sundaram Finance. Earlier, activities like the management of public deposits was a large activity. The industry has been plagued by a high percentage of non-performing assets, huge redemption pressures and falling credit rates. The industry is at such a stage that size will matter in the coming days.