Mkt sentiment may improve from Q109: Kalpana Morparia

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It has been a very difficult trot globally and as we head towards the second attempt at clearing the bailout package, global credit markets have seized up and there is still continuous redemption. Financial markets are in a tizzy though it seems quite likely that the bailout package will now come through.

Kalpana Morparia, CEO of JPMorgan, India believes that global risk aversion remains high. She said liquidity flows are still poor leaving raising capital as a challenge for public companies. Morparia said she also sees lot of deal flows in rights issues and private equity domain. She added that market sentiment is likely to improve from first-quarter of 2009.

Morparia believes that recent panic in investor sentiment was overdone in India. But increased domestic money generation will add liquidity to the market.

Here is a verbatim transcript of the exclusive interview with Kalpana Morparia on CNBC-TV18. Also watch the accompanying video.

Q: From your perch at JPMorgan how is the world of finance looking right now? How are you assessing the global situation as we head for the second attempt at the bailout package?

 

A: The situation is so dynamic and evolving that for once you will feel the worst is behind us and then you have a stumbling block again. So it is really a mood that is swinging across. If I was to make a call, given the events we know till now, we are seeing almost the worst is peaking out and now hopefully calm will return.

 

Q: Do you think the bailout package will soothe things or do you think it is too small to make a material difference to a world of credit, which is seized up completely?

 

A: It will definitely make a difference, how large a difference only time will tell, but it will definitely be a positive.

 

Q: What is the sense that you are getting about liquidity flows to emerging markets from JP Morgan? Are people extremely risk averse or do you think things might be on the mend in the last quarter of this year?

 

A: We will have to see the aftermath of the bailout package as things quiet down a bit. But currently there is risk aversion, and liquidity is an issue globally. One of the reasons why I see you are seeing a much higher credit growth in India, is because a lot of what was originally dollar inflows whether by way of access to equity capital market, External Commercial Borrowings (ECBs) etc., is now actually coming in terms of a growth in rupee credit.

 

Q: That's an interesting point in fact a lot of companies seem to be finding it difficult to access capital right now all the large capital raisings that are happening through rights issues which we did not see many of even in the last couple of years. Do you think that will change or capital raising will remain a problem and a sticky issue for the foreseeable future?

 

A: Capital raising is going to be a challenge so far as the public markets are concerned. However, rights issues, the private equity money players, including the ones, which are active in India, are seeing a whole lot of deal flow and definitely have appetite for good companies.

 

Q: What about JPMorgan? Do you think JPMorgan could be a conduit of some fresh money over the next few quarters into India?

 

A: So far as JPMorgan is concerned - there are two areas to be considered. One is our own private equity money what we call 'principal investments' and people who have pools of our principal investments are looking keenly at India's opportunities, and we will continue to grow that. Broadly, in terms of the amount that we have committed and what we expect to commit in the next couple of years, we are talking about somewhere between USD 800 million to a billion dollars. Additionally, JPMorgan is also working proactively with its clients who have need for money to fund their capital expenditure plans or any business acquisitions.

 

Q: Do you think capital expenditure or particularly for infrastructure will ease off over the next one year or so because of not so easy access to capital in India?

 

A:  Given the sheer need of physical infrastructure in this country, you might see the momentum slowdown a little bit, but it will definitely continue to expand. Earlier if all these events had not taken place you would have seen a much more accelerated pace of capital expenditure and given the events you might see it may moderate a bit, but since the need is so clear, I am sure investments will continue to happen.

 

Q: What do you hear about from your peers as well, because we hear a lot of talk about big redemptions happening from emerging market investors not just in US and Europe but even far eastern investors? Are you witnessing that as well that there is a lot of flight of capital from money raised by hedge funds, brick funds etc from this part of the world?

 

A: In a scenario like this, all depends on who do you speak to, on which day and accordingly you will get a different perspective. But speaking for India, I feel much of the panic and negative sentiment is overplayed. Let's not forget that in India, domestic players are getting increasingly more money and no one says that the savings rate in India is going to drop dramatically. Therefore, whether it is individual, directly looking at savings or through mutual funds, through life insurance and eventually with the opening up of the provident fund or the pension segment, domestic institutional investors are pretty significant and will continue to grow.

 

Q: Do you see any problems with the Indian financial system as such because there has been a lot of talk about how our banks will come out of this phase of global crisis, what's your take on it?

 

A: I think our banks are very well placed as I know of no domain in the world which has 35% of assets in risk free instruments, and capital adequacy across the board is pretty healthy. So I don't really see a problem in our banking system.

 

Q: You would have heard those vicious rumours which were swirling around over the last fortnight on your erstwhile ICICI Bank, how would you explain such rumours and what's your take on that?

 

A: It's a nervous market. So all kind of rumours going on. But ICICI Bank is strong given its capital adequacy ratios and the overall funding that it has access to. Thus, I absolutely see no reason for these rumours and I can say this because I was an insider a month ago.

 

Q: What could have caused them in your eyes, because this bank is being singled out, all rumours from promoters selling stakes to the bank being in trouble, to run on deposits, everything has come out over the last few days, virtually every kind of rumor that you could have feared?

 

 A: How can we speculate on why a rumour starts or not?

 

Q: How long do you think before things start getting better in terms of how global financial markets perform, do you think next 2-3 months will see things ease off a little bit?

 

A: We should probably look at the first quarter of next year (2009).