Majority of India is not affected by changes in stock market: Mihir Doshi, Credit Suisse
Inflation is now under control and we need to revive the economy. The more imminent issue to address is the currency, says Mihir Doshi.
Is the India story losing steam?
I believe there is definitely more to India than just the index. The majority of India is not affected by the changes in the stock market. However, our optimism or pessimism is connected with the performance of the Indices on a daily basis. My view is one should not equate the performance of the indices with the health of the economy. You have to look at the small steps before putting together the larger story.
International investors seem to be losing patience.
Interest in India is definitely a lot lower than it used to be. There are natural fears of a potential stampede out of FII equity money, which could bring down the stock market as well as the currency. Many are fearful of political uncertainty and a potential unstable government in the next elections. We believe both the fears, while clearly understandable, are misplaced, and over time confidence should come back.
But don't we have a new problem to address, the currency?
Inflation is now under control and we need to revive the economy. The more imminent issue to address is the currency. If the currency stabilises, then I expect to see RBI taking some action. But the key to that will be currency.
What do you make of policy makers' actions in the past few weeks?
The government and RBI are giving time to the rupee to stabilise and signalling that 60 is a hard-stop. A falling rupee is self-correcting, but the real economy does not move as rapidly as the capital markets. So, this hard-stop should help stabilise the rupee till the time the CAD comes down as the economy adjusts to the rupee at 60 vs the dollar.
As a large part of the capital flows funding our current account deficit was debt, a reversal would have proven dangerous. As borrowing rates globally have risen, and domestic liquidity eased, the chance of a corporate rolling over dollar debt with rupee debt was rising.
When US treasury yield is better, why should anyone invest in India?
This is the reason why there is an outflow, and we should ask ourselves if we should be allocating money back into developed markets. My thesis on this is from a fixed income perspective. From the equity market perspective, if there is growth in this country, there is potential. One should look at a 24-month forward if you want to be in emerging markets.
Ultimately, equities are all a relative game. It is right that you might see some flows go back, but if you have to take a call on which emerging markets to be in, with India's growth story remaining relatively intact, vis-a-vis the others, we are confident that investors will stay.
Not in the current environment, as the risk is too high in my view. It depends on where you borrow from, and adding the hedging cost, it gets to around 13-14%. There is the question of weighing the benefits of borrowing overseas or locally.
In these tough times, we have seen I-banks shrink. What is your strategy?
This is the true test of time, in the current market sentiment. Credit Suisse is very clear about its vision, and we are here to stay. Apart from business operations that we have in Mumbai and Delhi, we have a very large presence in Pune and Powai in the client servicing side. In terms of the core client facing businesses like investment banking and wealth management, the environment is challenging in terms of revenue generation, but it all comes back to the long-term opportunities.
In equity research, we were ranked Number 1 for India in the Institutional Investor Survey in 2013. We executed 3 notable QIPs for Jaiprakash Power, Jaypee Infratech and ING Vysya Bank. On advisory work, we acted as a financial advisor to Jet Airways on its stake sale to Etihad and in KKR's acquisition of a controlling stake of the Alliance Tire Group from Warburg Pincus. We also advised Videocon in its stake sale in Mozambique gas fields to ONGC.
But Credit Suisse seems to be missing in the league table on big ticket acquisitions.
From the perspective of a banker, we are very much in the flow. You can tell from the M&A deals mentioned. Our approach is selective and focused on cross-border opportunities.