On the broking side as well, though retail has still remained away from the share market, Shah says FY13 has been a better year compared to the previous year.
Rashesh Shah, chairman & CEO of Edelweiss Group says global liquidity will continue to drive markets higher. Indian equities have been on a roll this month mainly on global cues, coupled with the improved economic data and hopes of further rate cuts from the Reserve Bank of India (RBI).
On the broking side as well, though retail has still remained away from the share market, Shah says FY13 has been a better year compared to the previous year. "Investment banking and capital market activity still continue to be very slow. Therefore, it has been a fairly mixed bag but credit is the key driver for growth for everybody for the last few years," he told CNBC-TV18 in an interview.
According to Shah, HNI and wealth management provides a great opportunity but one has to take a five-10 year view as it is still early days.
Reports suggest that Morgan Stanley is looking to exit its wealth management business in India.
Shah believes most of the global firms have struggled in India to build a wealth management business our market needs are very different from other markets. He says one of the key differences is that Indian HNIs, Indian entrepreneurs, Indian promoters are still in the wealth creation mode. They are not yet in the wealth management mode because globally there is second generation-third generation of wealth, which is looking at improving yield and protecting wealth.
While in India, people still want to accumulate wealth, still want to increase their wealth, build their wealth. Therefore, the wealth management needs are very different; the product side and supply chain all of that has to be very different.
"There are lot of Indian banks and other Indian wealth managers who are doing reasonably well and the market will grow by 25-30 percent a year. But one has to be stable, calibrated and very attune to the market's need if one want to be in this business," he told the channel.
Interview transcript on next page.
Below is an edited transcript of the interview on CNBC-TV18.
Q: What is local sentiment like? Has it improved or started improving on the margin or is this just a global investor’s story so far?
A: We are seeing little bit of slowdown in sales from the Indian institutions and all. However, overall it is still the global liquidity, the global sentiment and some improvement on inflation front; expected interest rate cut from Reserve Bank of India (RBI) and all of that is also playing, but more than 75 percent of this current optimism is because of global factors.
Q: What do you sense in various parts of your business in as much as where you are seeing some degree of stabilization and pickup? Where you see business still being quite sluggish?
A: I think over the last few years, credit has been a good driver for growth for all companies in India; banks and non banking financial companies (NBFCs) and others. Therefore, credit is still a key driver because there is demand for it given the asset quality issues in the banking sector, the slowdown that is happening from banking sector.
So credit continues to be a good opportunity for everybody and we are seeing fair amount of opportunity in offshore asset management because there is a lot of global fund still wanting to come into India because the returns are fairly high. Therefore, our offshore asset management business is also doing well.
On the broking side, last year has been an improvement over the earlier year. So, FY12 was very bad but FY13, if you look for everybody then there has been a slight improvement. Investment banking and capital market activity still continue to be very slow. Therefore, it has been a fairly mixed bag but credit is the key driver for growth for everybody for the last few years.
Q3: There are reports that Morgan Stanley is looking at exiting the wealth management business. What is your experience been, not even for retail, I am talking about the high net-worth individuals (HNI) lot; any change with regards to their participation or sentiment towards the market?
A: I think HNI and wealth management is a great opportunity but one has to take a five-ten year view because these are still early days. Also most of the global firms have struggled in India to build a wealth management business. The markets need are different from what is globally and one of the key difference is that Indian HNIs, Indian entrepreneurs, Indian promoters are still in the wealth creation mode, they are not yet in the wealth management mode because globally there is second generation-third generation of wealth, which is looking at improving yield and protecting wealth while in India, people still want to accumulate wealth, build their wealth. Therefore, the wealth management needs are very different; the product side and supply chain all of that has to be very different.
So, I do believe over five-seven years it is a great opportunity, there are lot of Indian banks and other Indian wealth managers who are doing reasonably well and the market will grow by 25-30 percent a year but one has to be very stable and very calibrated and very attune to the market’s need if one want to be in this business.
Q: Even though we have been stepping step with global rally, observation seems to be that with Sebi deadline on public holding nearing, there is going to be quite a bit of liquidity pressure on the market in terms of all these issues being open. Would you agree that there is not enough liquidity to suck in all the issues that are likely going to hit?
A: I think the current liquidity is enough and quite a few of the large offer for sale (OFS) are fortunately out of the way. I do believe that there is enough liquidity to absorb the additional paper that is going to come out. The pricing maybe more conservative, which we have been seeing that people will not be going ahead pricing the OFS aggressively but we have enough appetite and fortunately June 30 is coinciding with good global liquidity risk-on mode, which is ensuring that the appetite is fairly good.
However, we are not seeing a lot of initial public offerings (IPOs). IPOs will take another couple of months to ramp up as the pipeline has started to fill in very slowly now. Therefore, for the next couple of months given the global liquidity factors, given the FII interest in India, I would not expect the OFS issue to be a major hangover over the market.
Q: Has there been any major shift that you have observed in the domestic investor fraternity in their preference for these three asset classes, gold, real estate and equity?
A: Fortunately, the fall in the gold prices and even real estate is starting to peter out because in the last three years there were huge returns in real estate also. But there is a huge supply coming in real estate too. I think almost every client I have spoken to is getting a lot of offers in real estate.
Therefore, the gold price fall, equities are starting to become interesting again and we are seeing HNI interest coming back into good quality stocks especially in banking because with the expected interest rate fall -- the reason in inflation fall has been a big catalyst for that.
So, on that count some amount of reallocation to equities is starting to take place. It is not happening in a big way; as compared to the foreign flows into equity markets, the reallocation into equities from the Indian investors is still very small but it is starting to happen and the gold price and the real estate tapering out is good news for equity markets.