Mumbai: Vice-chairman and managing director of Kotak Mahindra Bank LtdUday Kotak says the world looks a much better and safer place today, one year after the global financial sector meltdown. Kotak spoke in an interview at the Kotak Institutional Investor India Investor Conference. Edited excerpts:
Seeing safety: Kotak Mahindra vice-chairman and MD Uday Kotak. Girish Srivastava / Hindustan Times
How would you sum up global investor mood now?
You have got to keep it in perspective that when we had this conference last year, we were in the middle of what was a Lehman Brothers blow-up and the world looked a very different place one year ago...as we look at the situation today, one year later, the world really looks to be a much better and safer place than it did one year ago.
Having said that, the markets have responded phenomenally across the world—and India in particular, after the 16 May election results. More and more, as the world looks at the fact that the developed markets are going to find their growth slower, particularly (the) US and Europe, action has moved a lot more to the emerging markets. Yes, there is always a challenge of levels and values, but the global investors’ appetite at a time when liquidity is so abundant around the world has certainly shifted in favour of markets like India, in particular.
You are meeting a very large number of global investors in this conference. Would you expect to hear that may be in the last few weeks or last few months India has sort of stolen a little bit of a march in the eyes of emerging market investors over China because of all that has happened—the Chinese stock market fall, fears of overheating?
I think the Chinese markets in the last 30 days have had some pressure and a lot of the developments in China are government-driven. Therefore, if the government decides to tighten, say for example, liquidity flows or fiscal stimulus, it has more direct impact in terms of where Chinese equities are.
Also, keep in mind that Chinese equity markets locally within China are restricted and foreign flows are not as free in and out within the Chinese markets, particularly what is known as the A-share market, compared to India where the portfolio flows are much freer and the ability for portfolio investors to freely come in or go out is much easier. And, therefore, as we see the liquidity both globally and locally being comfortable in India, I think some of the rally in India, besides fundamentals, is also driven by liquidity.
If you expect liquidity flows in India to continue to remain strong, would you think that would come from any of these existing investors turning further overweight on India?
My view is that the flows of liquidity from the global markets will continue as long as the global monetary policy continues to be benign. As long as the Federal Reserve and the ECB (European Central Bank) are in the pause mode and are continuing to make sure that enough liquidity at low short-term interest rates is available, you will find money like water, trying to find a way where it can get better returns.
As far as India itself is concerned, which is the Indian domestic market, my personal view is that the Indian central bank may actually move ahead of the curve vis-à-vis the global banks, because it has always been more conservative, it has always had a mind of its own, and, therefore, India should be among the first places in the world where domestic monetary policy will move ahead of where the rest of the world is. That is something that we have to be ready for, which in the long-term is the right thing to do because we don’t suffer from the same kind of challenges that the developed markets are facing and, therefore, we have to do what is right for us domestically. But the global liquidity tap will continue to be strong as long as the monetary policy is benign across the world.
You’ve got the deputy governor of the Reserve Bank of India (RBI), Shyamala Gopinath, also speaking at the conference. Do you expect the deputy governor to hint that may be by the end of this year, or early part of next year because of the spike in inflation and food prices, India could look at tightening its monetary policy?
By now you know RBIspeak. You have to read a lot between the lines to really figure out where the RBI’s mind is...
So you think as early as December you could see the first signs of tightening in India or do you think it might be the first part of the next calendar?
I think we will see some move in the October-December quarter. It may not be a big move but clearly some signalling move, which may happen from the central bank and we should be ready for it. It can happen in the monetary policy or as the RBI has often done, it could be outside the monetary policy as well.