 "It's Goldilocks' time for India: Vikas Sharma")
Vikas Sharma, senior managing director, and president and CEO, India, Nomura, says today's environment is much like 2005 when the financial conglomerate raised a $1-billion India-focused fund. Nomura, which manages 80 per cent of Japanese fund-raising in India, is introducing new products to showcase the country's potential. In an interview with Joydeep Ghosh and Abhijit Lele, he says the Bank of Japan's (BoJ) surprise moves on Friday will help inflows into emerging markets. Edited excerpts:
After Prime Minister Narendra Modi's recent visit to Japan, has the quality of investment interest changed substantially?
I think it was building up already. And after the Prime Minister's visit, it has created a different level of visibility for the country. Japan looks for such positive and proactive leadership. We are seeing action in infrastructure, rare earth and SEZs (special economic zones). The positive tailwinds for India are great. With growth rates bottoming out, there is a possibility that pace of growth might exceed China in the next two or three years, which is a big positive. Internally, we think it is Goldilocks' times for India - growth with low inflation.
I think for the macro to look good, a lot of micro work has to be done. And it is happening. For example, instead of saying we are going to open foreign direct investment (FDI) and let it come, the government says it aims to be in the top 50 countries, in terms of doing business. It is the right approach because FDI will only come when there is ease of doing business. Similarly, other moves like bringing related ministries under one minister - power and coal for instance - will lead to consolidated work. Diesel price deregulation, which has been talked for long time, has happened.
There is marked difference between the number of discussions we have today and six months ago. The volumes are large in the equity desk. The fixed income and banking business all are looking up quite nicely. If you compare the first half of this year (ended September) to the second half of last year, they are like chalk and cheese. From a market perspective, we maintain a constructive stance with a Sensex target of 30,310 by August 2015.
Will BoJ's two key decisions on Friday - increasing the bond-buying programme and raising the limit of foreign equity holding for pension funds from 12 to 25 per cent - help inflows?
With the US Federal Reserve tapering down its incremental asset purchase to zero, there were fears that capital inflows into emerging markets would slow down. The surprise move by the BoJ to expand its monetary base (by an additional ¥10-20 trillion to ¥80 trillion) and increased probability of the ECB (European Central Bank) announcing a full QE (quantitative easing: Nomura sees a 40 per cent probability of QE in Euro zone by December 2014 and 45 per cent by March 2015) should boost global risk sentiment in the near-term and support capital inflows into emerging markets like India. India and Japan are natural partners due to Japan's huge savings base and limited growth opportunities, which is in sharp contrast to India's need for investments and opportunities.
What is Nomura doing to increase Japanese interest in India?
Nomura is by far the largest arranger of capital - with 80 per cent share - to India. We do not disclose that number. But it is massive. We are doing very interesting products. ... things which India has not seen.
For example?
Nifty futures have recently been listed on the Tokyo Stock Exchange. We are looking at developing a product around it to showcase India to investors in Japan.
Investment-banking business has gone through a very tough phase. Are things improving now?
India is a very different market. Globally, the fee structure outside for capital market transaction is four-five per cent. In India, it is two-three per cent. There is another angle to it. For the four-five per cent globally, there will be three or four banks. In India, for two-three per cent level, you have five or six banks. And then, the transaction size worldwide is $500 million to $1 billion, whereas here there are very few transactions of that scale. They are more like $150 million to $200 million transactions. I think the market will settle down as the pie grows. Investment bankers will realise there is no point in doing 20 deals for X dollars versus doing just five for the same amount.
We are very selective. So, people who have used us as a bank or continue to engage with us, see the value in terms of quality of advice, engagement and delivery. We are focused around these things.
After Prime Minister Narendra Modi's recent visit to Japan, has the quality of investment interest changed substantially?
I think it was building up already. And after the Prime Minister's visit, it has created a different level of visibility for the country. Japan looks for such positive and proactive leadership. We are seeing action in infrastructure, rare earth and SEZs (special economic zones). The positive tailwinds for India are great. With growth rates bottoming out, there is a possibility that pace of growth might exceed China in the next two or three years, which is a big positive. Internally, we think it is Goldilocks' times for India - growth with low inflation.
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International factors such as benign commodity cycle and a sharp drop in crude oil prices are working in India's favour. Are things moving fast enough on the domestic front?
I think for the macro to look good, a lot of micro work has to be done. And it is happening. For example, instead of saying we are going to open foreign direct investment (FDI) and let it come, the government says it aims to be in the top 50 countries, in terms of doing business. It is the right approach because FDI will only come when there is ease of doing business. Similarly, other moves like bringing related ministries under one minister - power and coal for instance - will lead to consolidated work. Diesel price deregulation, which has been talked for long time, has happened.
There is marked difference between the number of discussions we have today and six months ago. The volumes are large in the equity desk. The fixed income and banking business all are looking up quite nicely. If you compare the first half of this year (ended September) to the second half of last year, they are like chalk and cheese. From a market perspective, we maintain a constructive stance with a Sensex target of 30,310 by August 2015.
Will BoJ's two key decisions on Friday - increasing the bond-buying programme and raising the limit of foreign equity holding for pension funds from 12 to 25 per cent - help inflows?
With the US Federal Reserve tapering down its incremental asset purchase to zero, there were fears that capital inflows into emerging markets would slow down. The surprise move by the BoJ to expand its monetary base (by an additional ¥10-20 trillion to ¥80 trillion) and increased probability of the ECB (European Central Bank) announcing a full QE (quantitative easing: Nomura sees a 40 per cent probability of QE in Euro zone by December 2014 and 45 per cent by March 2015) should boost global risk sentiment in the near-term and support capital inflows into emerging markets like India. India and Japan are natural partners due to Japan's huge savings base and limited growth opportunities, which is in sharp contrast to India's need for investments and opportunities.
What is Nomura doing to increase Japanese interest in India?
Nomura is by far the largest arranger of capital - with 80 per cent share - to India. We do not disclose that number. But it is massive. We are doing very interesting products. ... things which India has not seen.
For example?
Nifty futures have recently been listed on the Tokyo Stock Exchange. We are looking at developing a product around it to showcase India to investors in Japan.
Investment-banking business has gone through a very tough phase. Are things improving now?
India is a very different market. Globally, the fee structure outside for capital market transaction is four-five per cent. In India, it is two-three per cent. There is another angle to it. For the four-five per cent globally, there will be three or four banks. In India, for two-three per cent level, you have five or six banks. And then, the transaction size worldwide is $500 million to $1 billion, whereas here there are very few transactions of that scale. They are more like $150 million to $200 million transactions. I think the market will settle down as the pie grows. Investment bankers will realise there is no point in doing 20 deals for X dollars versus doing just five for the same amount.
We are very selective. So, people who have used us as a bank or continue to engage with us, see the value in terms of quality of advice, engagement and delivery. We are focused around these things.