‘In markets that are growing so fast, volatility will remain’

‘In markets that are growing so fast, volatility will remain’

New Delhi: As chairperson and managing director of UBS India, Manisha Girotra has spearheaded major merger and acquisition (M&A) deals including Vodafone’s buy of Hutchison’s stake in Hutch-Essar, Hindalco’s purchase of Novelis and United Breweries’ acquisition of Whtye & Mackay.

In an interview with Mint, Girotra spoke about the investment climate in the country in the wake of the subprime crisis in the US and the volatility in the stock markets. Edited excerpts:

How would you describe the current investment climate in India, given everything that has happened globally?

Investment banking activity in India is peaking because Indian companies are going through a huge growth strategy and this requires growth capital. This growth capital is coming though public markets, private equity, strategic routes and other routes. That’s one aspect of the activity.

The other aspect is Indian companies wanting to acquire companies globally. Most of the larger Indian companies want to become the next Indian multinational, and having tasted success in the few acquisitions that have happened, they are more confident that they can empower managers globally and work with them very well. Because of both these trends, we are seeing a lot of activity.

What’s happening, ironically, is that this (the M&A deal-making) space has got really crowded. So everyone’s here. Till three, four years ago, you had the local joint ventures (of foreign investment banks) and few of the other (international) banks. But now everyone’s set up their own shop. Everyone has set up large shops. So, what we are seeing as an issue is the talent pool hunt.

There is a limited talent pool where we are hunting, the private equity funds are hunting, the hedge funds are hunting. But there’s enough business for everyone. There’s enough growth happening. Everyone’s identified their own niches. And ironically, it’s the international banks that are seeing a lot of competition.

So, what has the paucity of talent done to the wage bill?

It has increased a bit, but what we had done is (use as) a retention tool, our own global platform since it’s still a big thing in India that you are not just employed with UBS India, but after one, two years you get posted to Singapore, New York to gather experience.

The banking sector is doing well and the economy is also doing well. Still, there must be some fallout of the subprime crisis. What’s the directive been from the international operations to the Indian operations?

I think because Asian growth is so much at this point that it hasn't affected our lending capability, or appetite because this is where the growth is. So, it makes sense to keep deploying your capital. If anything has shrunk or will continue to shrink, it’s US balance sheets. That’s not an issue.

My real worry will be...an Indian company looking to acquire companies globally would get a lot of financing done at the target level itself. (In) a lot of acquisitions we had done, a lot of financing was at the target level. Now, we have to see how that’ll get affected. I haven’t seen any acquisition happening post the subprime crisis, but my fear is that’ll get reduced. So basically, that can be countered by raising more debt at the parent (company’s level) or through follow-on equity offerings etc.—but that can be done. Obviously, that makes it that much less attractive.

Post the subprime crisis, there seems to be a lull in acquisitions. Is it that, or are companies saying they want to step back and see how this pans out?

A bit of both. But also don’t forget, when you see an acquisition..., it takes time. When you see Tata (Steel)-Corus, Hindalco-Novelis, UB-Whyte & Mackay, these were all done over a year and a half. So, what you saw were (deals) in the pipeline for a year and a half and then you saw them coming, co-incidentally at the same time. There are lot of them (deals) going on now— Land?Rover-Jaguar,?Patni etc.— but it’ll take time. But I’ll agree with you there’s some sort of sit-back, but it’s not a climbdown. And anyway Indian corporates are cautious because we’ve been through the pains of?the?1980s and 1990s. All have been sensible acquisitions.

What’s your take on the market volatility? People were betting that the markets wouldn’t reach this level especially after the subprime crisis.

Volatility is a reality that’s been happening. There’s no question about that. Volatility in Asia is high; it’s not just about India, and in markets that are growing so fast, volatility will remain. Markets become that much more sensitive to every little thing.

...There is a huge feeling that US growth will slow down after the subprime (crisis). So, there is a redirection of funds to emerging markets and within emerging markets, it is getting redirected to India and China. The last time this redirection of funds happened, India missed out to Korea and Taiwan. This time they (the funds) are going to India because the pool is much larger and if they want to invest $300-400 million (Rs1,179-1,572 crore) this is where they can get that kind of size. So, that’s why what you are seeing... a disproportionate share of funds coming towards us. That’s because they (the funds) are playing catch-up.

By the same token, central bank governor Y.V. Reddy is saying he is alarmed...

But he has done a great job and managed things very well.

You are happy with the creditpolicy?


Even with new steps for regulating fund inflows?

That they (the central bank) are very much tough about. I meant in terms of the subprime context.

But the dollar inflows—that’s very tough to manage and what we need instead of the steps we are taking now is better management of capital. What (proportion of it) could go to infrastructure? What does it take tomorrow for the government of India to set up a Temasek-like fund? That’s the kind of policy we need to see now.