Last Updated : Jan 23, 2018 07:06 PM IST | Source: CNBC-TV18

Davos 2018: India story getting better; pain of GST & demon behind us, says, Uday Kotak

Watch the interview of Uday Kotak MD, Kotak Mahindra Bank with CNBC-TV18's Shereen Bhan at Davos 2018 in which he shared his views on Indian economy.

CNBC TV18 @moneycontrolcom

Watch the interview of Uday Kotak MD, Kotak Mahindra Bank with CNBC-TV18's Shereen Bhan at Davos 2018 in which he shared his views on Indian economy.

Below is the verbatim transcript of the interview.

Q: Let me start by asking you about what you made of the Prime Minister's message? Mr Jaitley tweeting saying that he stalled the India story on a global platform very convincingly and that he has also risen to the occasion as a global statesman. What is your own point of view?

A: I think it was an awesome speech by a statesman of global stature. And the three themes around climate change, terrorism and protectionism are really the key issues in the world and what better place than the world economic forum which has been focused on these issues and for the Prime Minister to say that India is going to play a very significant catalytic role in all these areas is also the sign of a statesman who effectively marketed the India story and at the same time, rose to the level of a global statesman.

Q: But he spoke about globalisation, he spoke about protectionism and the challenge of protectionism, he spoke about India being an open economy. There are several things there that would have caught the attention of global investors and domestic investors. What was the single biggest highlight to your mind?

A: The biggest highlight for me was the speech on protectionism and saying that the world needs to be open and at the same time saying that India will be open, but India knows how to take care of its interests. So a message which says we are open for business, but we will do what is right for India.

Q: I would imagine that echoes a little bit of what you have been saying as well because you very recently stated that a lot of Indian jewels are now foreign owned and in fact foreign savers are benefitting from these companies. You have said that the policy framework, while it needs to encourage foreign direct investment (FDI) also must ensure that we have significantly strong Indian home-grown companies. What do you mean?

A: What I mean is first of all, I am not saying we protect Indian businesses. That is not the core of what I am saying, but we must be clear what we are doing. If we say that in the case of an Indian bank, you have majority foreign ownership, in the world where you are aware that proxy advisors like Glass Lewis and Institutional Shareholder Services (ISS) effectively have a disproportiate share how global institutions vote. Therefore, if majority ownership is, maybe even if it is widespread, the two decision makers or influencers are two global proxy advisors, we should not fool ourselves that the decision making effectively has got much more centralised effectively in the hands of global proxy advisors, irrespective of individual holding in companies.

Q: So if I may pick up on what Mr Mundra, the former RBI Deputy Governor said and we quoted you to him and asked him what he made of that comment, he said that in his experience, this was not such a big problem or it was not a problem at all.

A: It is like saying why do we insure our house, why do we insure life? Then we should not be insuring at all. The insurance industry should be dead and gone long ago.

Q: So a foreign direct investment, 100 percent, if at all, for the banking sector, we do not know if it is going to happen or not, you believe that is a complete no?

A: You have to divide it into two parts. One is if foreign banks want to set up wholly owned Indian subsidiaries, that is a separate policy and that is different and that should be fine within the framework of reciprocity and everything else. But to say that we call ourselves Indian private sector banks and then we say that okay, 100 percent foreign ownership is okay, but we are Indian private sector banks. That is not on.

Q: Let me ask you about another issue that you have been talking about and that is the possibility of a bubble in some of the smallcap and midcap companies. Today, the Sensex hit 36,000, so the market continues to rally irrespective of concerns on valuations and so on and so forth. What is getting you worried?

A: First of all, money makes the world go round. So whether it is global money which is seeming to be opening the new year with a bang, so we are seeing a positive sign on that. Combine that with the fact that for the first time, many first time investors have come into mutual funds in hoards. At a time when thanks to demonetisation and GST, we have seem money move away from real savings in terms of real estate and gold into financial savings. So these are new comers. They are putting money in funds and unit linked policies and stuff like that. They have not experienced any volatility because they have no history on that.

Q: So are we in the midst of a bubble in that space?

A: I do not think we are in the midst of a bubble. What I have said is that we risk a bubble if continuing large amounts of money which on a broad funnel come into a small pipe of a few hundred stocks and particularly in small and midcap where we also have questions about the levels of governance.

Q: But what can you do if the money is going in? Who is to stop it?

A: I agree, but the question is very clear that when things go wrong, investors and savers and then you will have investigations and everything blaming the system, we have to be aware about the risk.

Q: But it is not just India. Globally as well, whether it is the equity markets or the other asset classes, we have seen a significant move up. And that is worrying some people like yourselves to suggest that maybe this overconfidence is a symptom of the fact that things are overdone.

A: Against that, I think you ought to look at the fundamentals. The US for example, lower tax rate means dramatically higher earnings. At the same time, the India story is getting better. I see the pain of demonetisation and GST behind us that the fundamental structural story of India is getting better and that needs to reflect in fair valuation. Now what is fair valuation, say largecap, midcap, smallcap is a matter of judgement and opinion and that is where we have to be clear that especially first time savers, we have got to nurture them and make this into a structural long-term bull market rather than a hit and run.

Q: Let me then ask you about your own plans to bring down your stake in the bank and you have till December, 2018. What is the most viable option you are looking at?

A: We are looking at various options, so at an appropriate time, we will communicate.

Q: Consolidation?

A: At this point of time, we are evaluating various options and I am not in a position to comment on any specifics.

Q: Do you believe that 2018 could be the year?

A: You are asking me what I have just replied.

Q: You just said that you are looking at various options. I am saying do you believe that 2018 could be the year?

A: Various options means various options of whatever are the possible options for us as a bank to look at.

Q: What do you make of the consolidation that we are seeing within the banking and the NBFC space?

A: These are all positive signs and I have always been a believer that over time, stronger entities, more productive entities is the way to go. That does not mean I am giving any signal on any of the options and I do not want any misunderstanding at all.

Q: Do you believe that in terms of the economy things are looking stronger today and do you see a revival as far as investment demand is concerned?

A: We are clearly seeing a pickup in loan growth, if you noticed our December results, we have grown our loans at 23 percent. We are seeing our earnings growth, we grew at 28 percent for the December quarter. Therefore we are seeing things come back and we feel pretty good about the state of the financials sector particularly our positioning and we think this is a significant structural opportunity for players in Indian financial services.
First Published on Jan 23, 2018 07:06 pm
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