Liquidity will not be tightened across Europe and US in 2013, Uday Kotak, executive vice-chairman and managing directorof Kotak Mahindra Bank.
I would like to see some more boost in terms of reducing post tax hurdle rates on debt and debt instruments.
Executive Vice-Chairman and Managing Director
Kotak Mahindra Bank
Liquidity would be the key global growth driver in 2013. Corporates and global markets are assuming easy flow of funds throughout this year. Liquidity will not be tightened across Europe and US in 2013, Uday Kotak, executive vice-chairman and managing directorof Kotak Mahindra Bank said in an interview to CNBC-TV18.
He expects portfolio investments to pour into India , but strategic investors will sit on the fence in 2013. "Strategic investors are more cautious about Indian markets, but portfolio investors would pump in money into the Indian market given the abundant liquidity and very low interest rates globally," he elaborated speaking at the world economic forum (WEF) in Davos.
Meanwhile, in the short run, US may clock lower growth of around one to two percent, but it may bounce back in the medium-term. For Europe, one can expect low to zero growth in the short-term and in the medium-term it is still uncertain, he added.
Below is the edited transcript of Uday Kotak’s interview with CNBC-TV18’s Menaka Doshi
Q: What you are gauging of the global mood here in Davos, given all your conversations with business leaders ever since you arrived. Is it one that is more optimistic or one that it is hopeful of stabilization not a recovery?
A: The world this time around particularly about Europe is more comfortable that there is no crisis; especially in the short run unlike last year when the biggest debate was does Europe get into a crisis. So, from that point of view, the world is a little more comfortable. At the same time through 2013, corporate and the financial world is assuming easy liquidity.
The issue with this situation is that it is leading to some amount of complacency that the central banks and the politicians will ensure easy liquidity, low interest rates and though growth will be slow in fact in Europe maybe close to zero no crisis therefore we will chug along. The issue which one has to keep in mind is that when you start getting more complacent about markets you also begin to have a fat tail.
Q: Maybe people are not expecting this withdrawal of the monetary stimulus but what are you expecting? Given that not very long ago, a few weeks ago we saw minutes of FED meeting that indicated that several of the voting members thought that soon it will be time to start withdrawing from the billions and trillions of dollars that central banks have started pumping into the economy?
A: With Draghi and Bernanke being there and more concerned about recessions and depressions I would be surprised to see any tightening of liquidity in 2013. 2014 is another matter we can talk about it then, but as of now for 2013 looks like easy liquidity.
Q: You struck a stable note for Europe based on your assessment. What about the US? Growth will be maybe one or two percent I think the most positive outlook is three but I think the more important issue is the politics in the US. We have went past the fiscal cliff to now be faced with the debt ceiling issues and that is going to have a substantial impact on the US fiscal deficit. How do you see this evolving over the next two to three months?
A: US, interestingly is looking like lower growth in the short run, one to two percent mainly because of issues around politics between the different parties. Medium-term US looks like it has the ability to come back because of Shale gas and various other creative stuff which US is doing. So, US is a picture of short-term lower growth, but it is getting better in the medium-term. In the case of Europe, short-term low to zero growth and medium-term uncertain, that is the difference.
Q: What I have been picking up from the people I have talk to seems to indicate that there will be growth, not too much of it, but most of it will come still from sweating existing assets cost cutting, efficiency not necessarily expansion, hiring, new businesses, new programs. Given that scenario, do you think that this year will be the year we will see that USD 1-2-3 trillions that’s sitting on corporate balance sheets being put to work globally in terms of investing in new businesses or do you think that will have to wait till 2014?
A: At least in the first half I don’t see it happen, but as things develop during the year and if there is more confidence which comes in you could see some of that. It will be safe to assume that not much of it will happen at least in first half of 2013.
Q: Based on what you have drawn out for me have the markets over-run themselves, globally not just in India given that we ended 2012 on multiple year highs on the S&P and the DOW and that sort of bullish phase continues into the new year yet everything we hear about the fundamentals of the underlying economy is not glamorous at all?
A: The policy makers in the world have taken a framework which is, give markets the steroid, so that the economy holds. In some way, this has worked because we have avoided a crisis whether it is the US, whether it is Europe. Both Bernanke and Draghi ensured that the financial markets continue to hold up while the economy did not run away it at least held up and we did not see a crisis.
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