Mumbai: Vice-chairman and managing director of Kotak Mahindra Bank Ltd, Uday Kotak, spoke in an interview about his reading of the stock markets. Edited excerpts:
Warning note: Uday Kotak, vice-chairman and managing director of Kotak Mahindra Bank. Munshi Ahmed / Bloomberg
What do you make of the signals from central banks around the world, including India, in their last policy announcements?
I will go back to what happened in 2008. People were worried in 2008. (They said) “Are we going to see a repeat of 1930s?” The good news is that policymakers knew what medicine should have been used in 1930s and used that medicine around the world in 2008 and 2009, which is based on historical experience and knowledge.
The problem now is that after having applied the medicine and saved the world from a crisis, we have no historical model about what to do next. The constant concern is, if we act too soon, will we fall back again? And if we act too late, will there be an inflation? Therefore, in the absence of models, we are literally driving in the dark without lights on, and therefore, there is an element of caution not wanting to rush in and do things, which will create a crisis or run the risk of a crisis again.
What do you think regulators should do next?
They should move slowly. There has to be a gradual exit. It should not be disruptive and I would be more on the side of caution in terms of moving towards exit slower rather than faster.
There is deep concern across the world because a lot of the stimulus money has been channelized into stocks and bonds. What do you think of the repercussions of this?
I think the answer to that is that the policymakers feel more comfortable handling an inflationary or reflationary situation. It is the deflationary side, which is more difficult for the policymakers to handle, and therefore, the caution is in terms of making sure that we don’t have another bout of potential deflation. Does it run the risk of a potential asset bubble? The answer is yes. But is that risk worthwhile compared to the risk of going back into the pit? That is really the issue. I would say that prick the bubble slowly and carefully; don’t disrupt the recovery process.
How do you do it slowly and carefully?
My view is that the Fed (US Federal Reserve) is unlikely to do anything before the second half of 2010. So, you have at least six-nine months to go before you see the Fed doing anything.
What is your outlook on the dollar for the next six months? How does India need to be prepared?
On a fundamental basis, the dollar has to get weaker. But on a technical basis, the dollar is clearly getting more and more oversold. In a carry trade, as you get more oversold, whenever a technical correction happens, it will be sharp. So this is the classic game, the music is on, everyone is dancing, you do not know when it will stop and where you will be caught.
So it is all about when you are going to see that shock, but that shock will come at some point of time.