After spending more than 30 years with ICICI Bank, Kalpana Morparia moved to JP Morgan India around two years back. She is trying hard to change the perception of JP Morgan in the country and insists that it is much more than an investment bank. In a free-wheeling chat with Ashish Rukhaiyar, she says it is wrong to say that divestment has failed to attract retail investors. Edited excerpts:
There is a perception that JP Morgan is only an investment bank.
The general impression about JP Morgan is that we are an investment bank and do very little apart from that. The fact is that JP Morgan is a large commercial bank. Our headcount has risen 20-25 per cent in the last six months. We also have a pool of private equity capital that invests in infrastructure projects in India. This is part of our larger Asia fund. We also have a real estate fund. While wealth management is currently only an offshore model, the idea is to get that platform to India over the next couple of years.
On the commercial banking side, there are two distinct thrust areas. One is to service large and medium local corporates, with greater thrust on those going increasingly global. The other is on multi-national companies operating in India.
We are also one of the largest custodians. We have a Global Knowledge Network, which is a specialised division that partners closely with investment banking, sales, trading and research divisions globally. It works with senior analysts to analyse and publish research on equity, credit, bonds, derivatives etc. Further, our Global Service Center serves as a microcosm of the firm in terms of the functions performed as well as the scale, scope and complexity of its activities. We also have a strong track record globally in asset management.
How do you plan to take forward your mutual fund business in India?
The key aspect of our mutual fund business is that we focus a lot on offshore funds that can be brought into India. The reason being that Indians, increasingly, will be looking at diversification across geographies. We bought a Greater China Fund last year. There are a whole slew of other funds that we are planning to bring. We will continue to do equity, but we do not believe much in coming up with new fund offerings (NFOs). They will come more in the context of offshore funds. We are planning to bring some sector funds (natural resources) and a broader emerging market fund. We also have a good record of managing fixed-income money.
Do you see the deal flow pace picking up? And in spite of the ongoing Europe crisis, do you expect more Indian companies to go overseas?
Yes, definitely. The situation is very different from what we saw in 2006-07. There is a lot of interest in terms of business synergies, but there is equal amount of caution in terms of costs. While there is a fair amount of interest in the inbound space, too, unfortunately, there are not too many Indian sellers. So, the inbound interest is more driven by ideas on a greenfield bias. Further, any uncertainty or adversity also creates an opportunity. If you see the stress continuing, it could lead to availability of bargain assets.
Most divestment issues did not receive significant response from retail investors.
Just track any follow-on offering that has happened in India over the last four-five years. You will see very little retail participation. Why will a retail investor apply in an FPO? He/she can directly place an order with the broker at the prevailing market price. So, direct retail participation is not going to be very large. But, you need to understand that when an insurance company like LIC is buying, it is not the government that is buying, it is the millions of individual policyholders who are getting the benefit. However, I think there will be an era of direct public participation in initial public offers.
But, the new norms on public float will require a lot of retail investors.
The total amount to be raised is $32 billion. Of that, around $26 billion will come from the government. The private sector will barely contribute $5-6 billion. More importantly, we need to see whether there will be enough public appetite from institutions. In the first five months of the current calendar year, domestic institutions have put in $3.5 billion in the equity market. And, the expectation this year is we will see $10-12 billion coming in from the insurance companies and mutual funds. Yes, currently there is some risk aversion. That’s the reason May was a negative month. And, mind you, we still do not have pension funds and provident funds participating in the equity market.
What are the main concerns for the Indian market?
The only concern is inflation. I am not much concerned about the valuation because that is in relation to the growth. While it might appear expensive on trailing numbers, factoring a 15-20 per cent industry growth will completely change the scenario. So, the challenge for India will be inflation. India is one of those unique countries that has a huge propeller on the investment side and a huge propelling force on the consumption side. Since we have such a great compulsion for investing, our consumption of commodities is going to be that much higher.
So, you do not mind the Reserve Bank of India (RBI) raising key rates in July.
Raising key rates by a quarter or half per cent is not going to hurt growth. I think RBI has been phenomenally responsive to ensure there is ample liquidity in the system.