Mumbai: Mihir Doshi, better known as Micky Doshi in financial circles, is the managing director and country head of Credit Suisse in India, which has seven entities in the country including a commercial bank, a securities firm, and an outsourcing unit.
Doshi says growth will pick up in India next year with the government making sincere efforts to put the house in order and interest rates likely to go down. He is worried about companies with high leverage, particularly infrastructure firms, but happy about his company’s robust mergers and acquisitions (M&A) pipeline.
Credit Suisse, which got a licence to start commercial banking operations in India last year, does not plan to enter into any new business in the financial services sector, Doshi, 51, said in an interview. His job now is “more about monetizing what we have,” he said. Edited excerpts:
Your house has been bearish on India for quite some time.
We are concerned about the rate of growth and the inaction on the part of the government to deal with the fiscal situation. Also, interest rates are too high for our present situation. Market concerns have not gone away and things will continue to be difficult unless we get the fiscal house in order.
Indeed, the government is taking steps like it did in September-October and I genuinely think the new finance minister will make an effort to put the house in order. How much he will succeed depends on how Parliament and the market behave. But part of his tall order is to try and raise money through the disinvestment process and that’s really market driven. I was bearish too but in the last three-four months I began to believe things would improve.
One of the recent reports of Credit Suisse talks about how you prefer China and Indonesia to India.
India has slowed and Indonesia continues to remain quite strong, and we have clearly seen growth there. I really think if we can see the market bottoming here in terms of GDP (gross domestic product) as well as interest rates moving lower, growth will pick up here next year.
There are so many macro concerns but the foreign money flow crossed $20 billion in the first 11 months of this year, the second highest since 1993. How do you explain this?
My simplest answer is that I am confused! I would say that part of it has been due to the fact that there are not many alternatives. The Time magazine called Manmohan Singh ineffective. I think this was unfair because it wasn’t as if we were in the dog house and other emerging markets were doing a lot better.
With global liquidity being so strong, India has had a good run. Secondly, I think some of the money has come via fund-raising for certain good assets, like Citi (Bank) divested $2 billion worth of its stake in HDFC (Housing Development Finance Corp. Ltd) and Carlyle did some block sales too. In the late 1990s it was similar, where we saw investment from a bottoms-up perspective. I think that’s what is happening now. Individual companies have done well independent of the macroeconomic parameters and that’s probably why we see money flowing in despite the macro scene not being that great.
Sensex is at its 19-month high and we are inching towards a stage where valuations are getting stretched.
I am not very good at picking tops or bottoms. I believe the markets will continue to remain fairly strong if we can remain at these index levels and put the house in order on the macro front.
What are the sectors you are bullish on?
You can ask me about the sectors or companies I am worried about. I am worried about the companies with high leverage and what is going to help them come out of their problems. One way of doing it is via equity issuances. But high-leverage sectors, mainly infrastructure, clearly remain a worry.
I continue to remain bullish on the India story. Yes, valuations are high, but I like the auto sector, the consumer sector, and if the interest rates come off it will benefit more sectors.
How about financial services?
For the financial services sector, it depends on who you pick. I generally feel they will also benefit from the economy improving next year.
Six-and-a-half years here and you have got a commercial banking licence but are not doing much on that front with only one branch.
It is part of our overall strategy. Six years ago we reactivated our security licence. We now have investment banking, wealth management and a bank branch to provide a comprehensive suite of services.
But no retail banking, right?
No, we will not go for retail. So, for now, we don’t need too many branches.
How many branches do you need?
It is hard to say. We are just digesting the one branch we have here, which has done well in the first year.
Globally, you integrated private banking and asset management. What is the impact in India?
Our model is really an integrated model. The idea is to create value and be a one-stop shop for the clients. You can take the perfect example of an entrepreneur, what we call a promoter in India. This integration allows Credit Suisse to manage the wealth of Indian entrepreneurs or promoters on a personal basis and be an adviser to his company and derive synergies from it.
You recently introduced the single family office product. That also exemplifies integration.
Yes, that’s a new product in the wealth management business. If you go through the details, you will find that it allows our private bankers to offer different services under the wealth management umbrella and also be the face for that promoter for his or her other needs, which can include investment banking. The top 10 companies in India, excluding multinationals and commercial banks, are promoter-led companies. If you capture some aspects of their investment banking and private banking needs, the upside can be significant and our model really works well in being able to address these needs. We have a system called single global currency where we incentivise our investment bankers and private bankers for successful collaboration.
So, there is no structural change in India?
We have all our business lines in India—be it wealth management, fixed income, equities investment banking—under one umbrella and I look after that.
Aren’t you interested in asset management in India?
We are not in the traditional asset management space even globally. What we do have here is an asset management offering for our private banking clients. Our asset management activity is embedded in our wealth management offering. We have a specific offering for the private wealth management clients but not mutual funds.
In a slowing economy, how do you see the merger and acquisitions in India? You are involved in a few of them.
That remains fairly good both in terms of deal closure as well as deal pipeline. Our deal pipeline remains very robust. We are working on a few transactions.
If you look at the capital market calendar through September, it was dead. Now, it has picked up a bit. I think next year’s pipeline will be better. However, when the capital markets were quiet, M&A has kept us going. We have closed deals like the Thomas Cook and Netmagic sales this year.
The primary market is also being revived now.
For the primary market, it will be difficult to pull anything off in the next one month. Come next year, if the markets remain bullish, the primary calendar will pick up further.
Are you skeptical about the government’s divestment plan?
If the markets are buoyant and the government is sensible about the valuation, I think they will succeed. In fact, this holds true for every issuer, be it public or private sector. Price is going to play a critical role.
What are the few things that we need to do to change the macroeconomic scenario?
(P.) Chidambaram coming to the finance ministry was a big change. The announcement on FDI (foreign direct investment) norm change again has shown the intent of the government rather than actual dollars coming in the aviation sector or retail sector yet.
I would love to see interest rates coming off. Secondly, I would love to see the government tackle the fiscal situation—disinvestment is one way. It will be a dream to see GST (Goods and Services Tax) go through and if the Insurance Bill is passed, it will be good. I would love to see the rupee stabilize. It is perplexing to see the rupee depreciate.
For Credit Suisse, what do you want to change?
Our structure is completed. Private banking and wealth management, equity, fixed income and investment banking… everything is in place. We have all elements required to do banking across products. If markets are favourable, I believe in monetizing it and doing a better job. Building a loan book is part of the business and we would certainly like to increase our assets under management. It is more about monetizing what we have.
You also had a private equity advisory business.
PE advisory is part of our wealth management business. We have moved away from any principal activity using our own capital. Regulatory changes have changed the model. We are a client-focused business.