FIIs long-term bullish on India: Deutsche Bank

Dismissing talks of stagflation, Amit Bordia of Deutsche Bank said in an interview to CNBC-TV18 that clients are extremely bullish on the Indian market. Low interest rates and tight credit spreads make the Indian economy very attractive for foreign investors to tap into.

Also read: Global EM funds fuelling Indian inflows says Rukshad Shroff "They are just looking for the right entry points and that is around sentiment and news about the economy. It seems like the last four-five months have given way to a very positive sentiment, much like the equity market," he added. Below is the edited transcript of Bordia's interview to CNBC-TV18. Q: A lot of people are now talking about stagflation. Do you think that this high inflation and low growth situation will continue for our economy? What is your expectation as we head into the Reserve Bank of India’s policy on the March 19? A: I certainly do think in the medium-term we are going to see a breakaway from this potential threat of stagflation. I am not an economist but from the vibes I get from the clients we cover, from banking and corporate India, I think that we are headed for a positive term going ahead. Q: You arrange a lot of money for Indian corporate. What is the sense you are getting from the buyers of Indian bonds or Indian loans. Are they pricing in higher premium because of the volatility that the rupee has seen and because of the perceived threat from higher current account deficit (CAD)? A: From corporate India point of view, it seems like a phenomenal time to shape, rebuild or sort out one’s capital structure. From a global investor perspective, the confluence of tight credit spreads, low interest rates, gives Indian issuers a phenomenal opportunity where they can tap into the international markets. The deal flow that we are seeing from our clients and across the street is testament to that. We have closed in the first two-and-a-half months of the year as many transactions as we did in the entire calendar year 2012. That gives a rapid sense of change in terms of the appetite. The issuers understand that this is a great environment. I think from an investor point of view, they are always very long-term bullish India. They are just looking for the right entry points and that is around sentiment and that is around news. It seems like the last four-five months have given way to a very positive sentiment, much like the equity market but in the equity markets entry point matters. In the debt market, it is the belief or relatively more certain environment that matters and we are seeing that belief expressed by the international investors. Q: What do you think is the trigger for this heightened appetite? Has it got anything to do with the lowered withholding tax? A: A lot of measures taken by the RBI and the government have been taken very positively by the international investors. People internationally have been very long-term bullish India, they were just looking for the right entry point for the last two years. There were not deal flows in last year. The first two-and-a-half months of this year have completely proven that we are in a very opportunistic window both from an investor and an issuer point of view. There is a secular trend of converting some balance sheets from rupees into dollars. The private placements and the structured financing has given way to much more public issuance whether it is from a structured private business to public financing, from rupee to dollars and from loan to bonds. Those three trends have been very secularly observed in the last two-and-a-half months. Q: For 2013, what is the deal pipeline looking like? In terms of sectors, what are the attractive sectors in the market where deals are likely to get struck? A: The positive momentum is across the board. There are many sectors which were deprived of new capital for the last two years that are now seeing some fresh appetite. Some of the largecap names in the country, which are very well-known internationally, have also taken the opportunity to tap into the international capital market on the debt side. So, it is across the board. It is across the spectrum of large local companies as well as the midcaps that are also seeing some window of high yield issuance coming back. The investor demand has been fairly uniformly spread across the globe. We have seen demand coming in from Europe, US. We have seen demand coming in from the private banking community outside India for some of these papers. Therefore, it is a very positive outlook from financing point of view for the remaining part. I do think that there is a six month or so window of opportunity for a lot of the issuers. This is a very good opportunity to retool and reshape one’s capital structure. We are definitely encouraging our clients to take advantage of this opportunity. And purely from an instrument point of view, the bond is back. I think that market is fairly active and there will be much more in the months to come in there.