Pankaj Vaish, managing director and head of equities & fixed income liquid markets at Nomura Financial Advisory & Securities (India), says he takes a contrarian view of things. Unlike most market players, Vaish — who came to Nomura after the Japanese financial giant took over Lehman Brothers — says things could go wrong for the stock markets, though not on the same scale as in 2008. In an interview, he tells Abhineet Kumar & Sidhartha that Nomura is looking to set up another finance company to deal in corporate bonds. Excerpts:
The next year looks promising with companies planning to raise Rs 150,000 crore by selling equity. It looks pretty huge
It does. But for me there is not much information in that. It simply says that if the markets continue to do well, the issuance can happen to that extent. Vibrancy of capital markets is obviously a good thing. The government is reducing its stake in some public sector companies. So, all these things are quite nice. But if the markets were to tank, all of this would be withdrawn.
But people are talking about shrubs. Green shoots are a thing of the past.
The last 24 months have taught us not to extrapolate. We all tend to see the trend of the last few months. Everybody is in a good mood now and I hope this continues. I am somewhat contrarian by nature. So, we felt very comfortable being long most of this calendar year, which was not an easy call in February and March. Generally speaking, the next year should be good as well.
Globally, rates will remain low, there is search for yield, and there is search for assets that will outperform. India is in a far better situation. But there will be some pullback owing to a necessary monetary tightening.
Then what could be the spoiler?
If the hike in interest rates is a little faster than what the markets expect, it could be a spoiler. There is another point that a fair number of people have started talking about. This is about the economy sliding back in the US and the UK, which probably still have a lot of things to sort out. Dubai was localised, but if something bigger happens, it will affect banks all over again. Then, there could be problems. It does not have to be of the magnitude of what happened in 2008, but would cause enough sense of disbelief in the recovery, which would cause a natural problem for the markets. Some UK banks still don’t have all their books marked to market.
FII (foreign institutional investor) fund flow has helped recent QIPs (qualified institutional placements) and IPOs (initial public offers). Do you expect the fund flow to continue next year?
If the markets are stable, you can expect similar numbers that you saw this year. If there are more QIP or other issues, the inflows could be larger. The money is there. Global hedge funds and long-only funds have plenty of money. Households are also able to provide further inflows. People definitely got shell-shocked and went into the savings mode. But that can be liquefied. If the markets remain stable, that money will come back. The higher one-year CDs are expiring but now in the G7 countries, the rates are not going up and people are desperate for higher returns. You can see that in India also. Look at what has happened to fixed deposits. People are searching for higher returns.
Is dollar appreciation a concern for FII flows?
The appreciation of the dollar is going to be short-lived. First, there is a possibility that dollar appreciation and S&P 500 appreciation will go hand in hand. Seven to eight years ago, there was a correlation. Secondly, the focus will now be on fundamentals of emerging markets. So, I am not too worried about that unless we see the dollar going above 52 to a rupee, which I currently don’t. FIIs would not be dissuaded from coming to India at 46 to 49; if anything, it is a better entry.
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This year, the stock markets offered great returns. What is your take on 2010?
Historically, such large years are not followed by another huge year. So, strictly going by that, we should be less enthusiastic. I am simply not extrapolating. I just don’t have the same level of enthusiasm that I had in March. If the earnings keep coming in, the enthusiasm will be back. The market is fairly priced right now and may return in the teens next year, depending on RBI’s actions.
Can a large number of issues impact the secondary markets?
Issuances will only come if the markets are rallying. Investors are hopeful that the markets are doing fine. When you have that environment, when all secondary issues are doing okay, a minor re-rating happens for existing stocks.
Is pricing going to be the deciding factor?
It is always healthy when people are looking at pricing. So, some issues fail and some issues succeed. That is healthy because people are not putting money mindlessly. I was nervous when they did not talk about it.
But are FIIs comfortable with pricing when retail investors are not?
FIIs look from different lenses. FIIs have a different risk profile and they tend to be nimble; they get out if they think they have made a wrong decision. Retail investors look at long-term investments, which is good.
Listing gains are out. Is that going to deter retail investors?
That was unhealthy. It is healthier now that they are not buying stocks for first-day gains.
Do you see new products coming in?
There will be a lot of choice. New products will come, which is good thing. So far, there is a somewhat counterproductive ban on OTC derivatives onshore (to customise being embedded in products).
That will open up choices for household investors as well as customisable hedges. In the corporate bond market, we should contemplate exchange-trade funds (ETFs) for corporate bonds. ETFs will just be a basket, easily tradable on the exchange, with low transaction costs. It will provide a big boost to corporate bond liquidity in the secondary market. Also, commodities trading for a wider group of institutional players will allow the much-needed liquidity and hedging that we as a merchandise-deficit country must do.
What are you doing to strengthen your operations in India?
We already have a full-fledged equities business, including direct market access and prime services, and a primary dealership that is very active in providing liquidity in government bonds and swaps. We have applied for an NBFC (non-banking finance company) licence. Through that entity, we would like to get into corporate bond trading and customised notes issuances to cater to the needs of investors, among other things. We are also entering into a joint venture with LIC Mutual Fund.
Is there a lot of interest in Japan on investing in India?
Yes. Late last month, Nomura launched a Nifty ETF on the Tokyo Stock Exchange. There is a lot of interest in India given the yield-driven hunger. Five or seven years ago, there was a lot of interest in high-yielding Uridashi bonds in New Zealand and Australia, but now people are looking at emerging markets within Asia.
