India has very few companies to invest in: Vishal Kampani, JM Financial Group
We would like 30% of our assets in five years from now to come from SME and retail
Talking to ET Now, Vishal Kampani, MD, JM Financial Group, says today, a lot of capital is getting concentrated in a few names and those few names are getting very expensive.
When do you think there will be a revival in earnings?
Things will turn around but they will be at a slower pace and we will have to wait for a year to 18 months for a real turnaround in earnings. India looks relatively good today. Even if you have to put your money as a foreign asset manager, I think India looks very good compared to some of the other emerging markets.
In the local markets, people do not want to allocate more capital to gold and real estate and deposits are earning you nothing post tax. So where is the capital going to go? It is going to go to equities. The challenge is that we have very few companies to invest in. India should have a thousand companies which are investible. I would encourage a lot more primary market issuances, more IPOs, more companies going public, so we have larger amount of companies to invest in. Today, a lot of capital is getting concentrated in a few names and those few names are getting very expensive.
There are very stretched valuations now in the broader markets as well, where there is a fear that this may come crashing down?
I do not think it will come crashing down but you may see a dip. There is no question you are right absolutely right things are stretched, valuations are stretched.
The primary market is doing really well. You have a great IPO in hand. It must have been a great year for you?
Yes, it has been a great year for us. I cannot complain.
Are there more IPOs that we can expect?
Yes, lots. Most of the IPOs though are in the financial space.
Insurance seems to be the flavour of the season.
Insurance, NBFCs raising money through QIPs or banks raising money through QIPs or IPOs. A lot of the action is in financial services but again if the general economy does not pick up, financial services cannot keep growing like this. You need an economic pickup.
What about SMEs? In the past, You have been very bullish about lending to SMEs but is that a risky proposition right now?
That is a great question. We started our journey to diversify into SMEs and retail lending last year and as you know we have had demonetisation right after that, we have had RERA, we have had the bankruptcy code, we have had GST. So we slowed our plans a little bit. Having said that, our plans are not off the table, we would still like 30% of our assets in five years from now to come from SME and retail and right now the number is 10%.
What I can expect in the next one year or two?
Lots of deals. The capital markets are doing very well. There is a lot of capital in India not just from international sources but from within
I am guessing lot of exits will also happen if markets go up to record highs.
Lots of private equity exits yes absolutely. We are seeing incrementally lots of promoters want to sell their businesses when valuations are high. So, you will see more M&A activity and you will see a lot of capital market activity. We are very focussed on the capital markets business despite it being 15% of our revenues.
What can we expect in the next 10 years?
I think every financial services group at some point would like to be a bank.
You did apply for one?
We did, we did not get it unfortunately but at some point we will rethink about it. Right now, we would not.
Is there any particular reason why you are giving up on this dream for three years?
Yes, because we want to reach a certain asset size. RBI is looking at NBFCs very positively, which is great and we are right now at Rs 13000 crore in loans, close to Rs 12500 crore in distressed loans. We like that size to be close to Rs 30,000-40,000 crore and then we will re-evaluate whether to grow to Rs 1 lakh crore over the longer term, we need to be a bank or not. But up to the size of Rs 35,000-40,000 crore, we can very comfortably manage as an NBFC.
You just mentioned that right now you are still seeing that people would prefer to invest in equities and not other asset classes -- be it gold or real estate. But if that is the case, does that augur well for your real estate business?
The property market has been going through its own challenges and we really welcome RERA. The dawn of RERA is similar to how SEBI was born in 1992-1993 for the capital markets business. I see this will allow the sector to clean up. So you will see the recovery in prices 18 months to 24 months from now. That is my bet.
I would imagine checking out on distressed assets in Noida, Gurgaon?
A few of them can be turned around but I will be honest, a lot will not be able to be turned around. Many of these buildings really have not sold well, construction has happened and there are stuck projects.
But there are lot of buildings that have sold well for example the Jaypee case. I am talking about it because it is in the front pages you do not have to tell me if you are not evaluating.
No, no we are not evaluating.
But what can be a possible solution for that?
It is very tricky. The trick is if we have to fund that project, we have to make sure that the balance receivables right are enough to support the balance construction cost to finish the project and we have some profit left in the game. Till you do not have a revival in price, nobody is going to look at these projects. So that is a very tricky situation. I do not see a price recovery at least for 18 months.
ET Now: I talked about the asset reconstruction business. Now it seems to be the buzz word. There’s a lot of interest behind it. Are people making money in this business first of all?
We are making money in this business and people will make money in this business. JM has had a very early lead. We have kind of a first mover’s advantage. We were one of the first private sector ARCs in the business. We have a long experience and we turned around a lot of assets.
Our IRRs have been in excess of 30% on the assets that we have turned around and it is a very promising business and in the last two years of course you have heard of a lot of global players who want to enter and that is a good thing. India is facing short supply of capital because the NPAs are upwards of Rs 10 lakh crore and the total capital in the ARCs put together is not even Rs 10,000 crore. I welcome all the players and I think if we work together and we are sensible then if all these players coming in we can have some more momentum to recover these assets.