Gaby Abdelnour is JPMorgan’s chief executive officer for Asia-Pacific. He was in India to meet clients amid a rush to raise resources and spoke to Sidhartha about his impressions of the recovery and the firm’s plans for India. Excerpts:
There are large portfolio flows into markets such as India and the rupee is showing signs of appreciation. While there are returns here, once Europe and the US stage a comeback, do you see a moderation in flows?
You are right that returns are here and money follows them. The kind of global liquidity we see is sufficient to support emerging and developed markets. But you must remember that the share of liquidity flowing into China and India is still small. If tomorrow something goes wrong, liquidity will dry up. The money coming to the region is not being taken out from other markets. There is still a lot of money lying in money market funds.
But what happens when central banks start withdrawing liquidity?
That’s a different story. It is not clear how that is going to happen. We do not know whether it will be coordinated with other countries, whether it will be done by raising interest rates or through higher reserve requirements and also at what point of time that will be done.
Many of your Indian clients went abroad to acquire businesses and some faced difficulties. A year after the crisis, are these companies back in shape or will they take a while?
There is a financial as well as an operational side to things. Money is not an issue. On the operational side, there is stabilisation taking place. And, between the two, you have enough headroom to make things work.
Is there more interest in inbound acquisitions or are Indian companies once again looking to acquire abroad?
There is no question that there is interest in inbound acquisitions. By and large, it’s a function of what’s the home market of the buyer. There is more interest in going out even at this point of time. We are in dialogue with our clients as there are attractive opportunities if you have the capital. Globally, the merger and acquisition (M&A) business is significantly lower. When we talk of cross-border M&As, we are not looking at the heydays.
Some of the large acquisitions by Indian companies were leverage buyouts. How do you see things shaping up on that front?
They will come back. The question is whether they will be back with the same intensity. Many buyouts were driven by leverages and not by a sharp focus on operational efficiencies. I do not think we will see a return to cheap pricing at least in the next 12 months. For another 12 to 24 months, I do not see a return to easy terms and conditions and leverage multiples that we saw just before the crisis.
What will be your India strategy over the next three to five years?
I met some key employees here. These are people whom we hired in the last three years when our business more than doubled. There are some questions that I am confronted with: Should we be in corporate banking? Should we be more active in the commodities business? Should we have more branches? Should we be more in the principal activity? Should we be lending more money? In some cases, we are already among the largest. In the principal business, we have a big book. We are growing the commodities business. We are the leading bank in the corporate finance business. We have 30 per cent market share in equity capital market. We did not have these things three years ago. For me, it’s a marathon in terms of what we want to invest over the next three years. I want to be substantially bigger in the corporate banking business. What we are missing here are consumer and credit card businesses, but these are done only in the US. It is incumbent upon the leaders in the countries to come up with the subjects tell us where they want to take the business.
Have you set any target on where you want to be?
No, not really. We want to be among the top three in all these businesses. Once you are there, you can drive those businesses.
On the private equity side, you were looking at investing $1 billion a year ago.
A year ago, there was a number, today there is a different market. We have the ability to get there. But we also have to remember that we are in the business to earn some returns. In a way, we are happy that we have not put more than our current investment.
Do higher valuations make investment choices tougher?
Yes, valuations have gone up. But many people had to mark to market their investments last year.
The commodities business is one area where you are hiring aggressively. How critical it is to your scheme of things in India and the Asia-Pacific region?
You have to look at the region as one where there is commodity shortages because of rapid growth. There is another element of carbon credits and there is a tremendous need to manage it. Our commodities business is really driven by the paper sector, in terms of contracts and the physical side as well as the environmental side. We try to assist clients in risk management of their portfolios and help structure deals that make sense for them while avoiding speculative transactions. The business has to be driven by operational needs.
