Fund managers can play a more active role in ensuring transparency in balance sheets of companies but require a forum to facilitate this, says T P Raman, Managing Director, Sundaram BNP Paribas Asset Management Company (AMC). The AMC, which was set up in 1996, manages Rs 9,267.06 crore today. In an interview with Palak Shah, Raman speaks about the current market rally, fund managers and risk-taking.
The situation has improved since US Treasury Secretary Tim Geithner’s $1 trillion package. How much more time will be required for a complete recovery?
Government action worldwide, including Geithner’s $1trillion package, has been received well by the markets. The recent G20 summit was an important rallying point for markets. However, it must be understood that the current slowdown is one of the most difficult phases seen in the last few decades and any government action must be viewed in that context. We should look at a time frame of another 6-12 months for things to start taking shape.
What do you make of current rally in the domestic market?
The rally may last a little further and the markets may stabilise as there is no major bad news expected from the US. Moreover, foreign money has flowed into the country over the past couple of weeks and if the election results are positive, that is, if any of the two major parties — Congress or the BJP — forms a government, the markets will stabilise.
After public outrage in the cases of AIG and Merrill bonuses, how has the risk-taking ability of fund managers been impacted?
At the outset, it must be understood that AIG and Merrill were one-off cases, representing the failure of managements and regulators. Bonuses are only a symptom of a deeper malaise in the US financial system – lack of accountability and prudence in decision-making. Also, the profits were largely synthetic in the case of these corporations. In the Indian context, we are talking of true profits and hence, the risk-taking ability of fund managers is not likely to be impacted.
Markets expect further stress on balance sheets of Indian firms in the fourth quarter. How do you perceive the situation?
With the capital expenditure plans of most companies put on hold and a lack of appetite from the demand side, there is a possibility of strained balance sheets.
What could be the way out for fund houses, which have invested in beleaguered sectors such as real estate?
The real problem in the system was a lack of liquidity. This led to considerable strain in certain sectors of the economy, especially real estate. However, with the government pumping money into the system and easing the interest rates, liquidity is likely to improve and the real estate sector should be a beneficiary of the changed circumstances.
Post-Satyam, questions have been raised about accounting practices in Indian companies. Who should take the onus of making sure that good practices are adhered to?
In my view, the onus of ensuring good accounting practices are followed lies in the hands of the respective managements but if they fail, than regulators and government should set an example to ensure that companies do not inflate their accounts.
Can fund managers play a more active role in ensuring transparency in balance sheets?
Fund managers can and should play a more active role in ensuring transparency in balance sheets. For this, the entire MF industry should come together and set transperancy standards or a proper forum in consultation with the regulators. The MF industry should unanimously shun errant companies that do not divulge or try to manipulate key financial information, until they come clean.