DSP Merrill Lynch President Kevan V Watts, who has been in India for around a year, is candid enough to admit that he does not understand India. Watts, who has been busy working out the strategy for DSP Merrill Lynch and Bank of America’s combined operations in India, however, says his understanding has improved during his stint in India. In an interview with Sidhartha, he shares his plans for the companies and his impressions of the Indian markets. Excerpts:
Tell us how life has changed in the last eight-nine months.
Today, things are looking so much better in terms of business, both globally and in India. We were looking into an abyss in the third quarter. It is not business as usual now, but that may not be an accurate description since you will never have equilibrium.
What is the strategy in terms of making the best use of DSP Merrill Lynch and Bank of America?
The strategy is clear as these are two distinct businesses with very little overlap. The client base of the two firms allows us to offer them more.
What are the new products that we can expect from you?
It is a question of making the most of what we have. We continue to have a high level of focus on the private clients business and we need to enhance our offerings since we are too focused on equities. We want to get our clients to access fixed income products as well. We want to provide fixed deposits out of Bank of America.
Is that also a stepping stone for a foray into retail banking for a larger client base?
We do not want to get into the mass affluent segment in the forseeable future.
Are we seeing a revival in the primary market with many companies lining up equity issues?
The Indian markets have bounced back very, very quickly. There was some volatility in the markets due to foreign investment flows but it was not about events in India. As liquidity has improved, Indian markets have come back very strongly. People are looking to next week’s Budget to see how the government strikes a balance between growth and fiscal deficit. At the same time, investors are conscious of the fact that the deficit is driven by the cycle. The other near-term worry is monsoon.
India and the world should not lose sight of the fact that the big motor that has driven the markets for the last seven-eight years is not going to come back. China was exporting to the US and to other parts of the world at phenomenal rates and the US was growing at phenomenal rates. But the world has now identified new motors. India remains very exciting and the election results have sent very positive signals to international investors. But the big issue is the ability of the public sector and Indian companies to execute their plans. Between India and China, there is more comfort with India as it is transparent and democratic.
How do you view QIP and IPO plans?
What we are seeing is companies taking opportunity of the rally to reduce their gearing. That’s understandable. We must also acknowledge the fact that Sebi has made the regulations flexible. Globally, too, there has been a revival in financing and banks have raised equity.
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Which are the areas where you would want the regulator to introduce more flexibility in regulations?
Striking a balance between flexibility and control is a big challenge in any developing market. As an investment banker for 28 years, my prejudice is in favour of the market, but the market can get it wrong. There are also some skeptics who wonder how real estate companies, which had cash problems three months ago, can raise crores within a few minutes. That is the nature of sentiment in the capital markets. In a market, things are not as good as they seem and things are not bad as they look. It is driven by fear and greed. With liquidity, you get investors back in the market. For India, there will be more international capital that will be available. There is much more understanding of India in the investor community. But India will have to offer attractive opportunities and attractive returns.
Given the interest in India, do we expect a new India-dedicated fund from you?
India funds are very crude now as clients want to know which part of India and which company should they invest in. They know the difference between a large power company and a mid-sized irrigation company.
Are you seeing signs of improvement in the M&A space, which is another big business area for you?
During phases of market corrections, chief executives are more cautious as they need to be sure that valuations have settled. There are signs of revival in the M&A market and we are working on a very large deal involving a South African telecom company, which could be the largest ever cross-border deal for an Indian company. It may not be back to a frantic level, but we are seeing sustained activity.
What about the fees? Is there some pressure?
The fee is never high enough and it only moves one way, which is down. The only way to deal with it is to provide more value.