After spending 22 years at Morgan Stanley, Mihir Doshi took charge of Credit Suisse business in India in 2006. The external environment has been tough since then, but Doshi has used the time to set up its equity broking, investment banking, fixed income, private equity and real estate businesses in India. In this interview with Shyamal Majumdar and Anirudh Lashkar, Doshi, managing director and India CEO of the company, admits things have slowed down, but says Credit Suisse is looking to grow its market share in the next six to nine months. Excerpts:
What’s your outlook for the industry?
People can be prone to excessive reactions. Clearly, there have been excesses on both sides. During the last three years, there was a very strong uptake in credit and people were optimistic. Now, there is ultimate pessimism and no investment. The leveraged factors in corporate balance sheets have gone up. People have been planning for a sunny day rather than a rainy day, and planned accordingly. With economic growth correcting to 5.5-6.5 per cent against over 8-9 per cent over the last few years, there will be adjustments and we need to re-calibrate ourselves. This will happen through credit tightening across all sectors. People will now focus on cost efficiency. I think, things are not going to be easy. People need to tighten their belts for the next 12 months.
So will Credit Suisse slow down in India?
In the last two-and-a-half years, we have set up our equity broking business, investment banking business, fixed income, private equity, real estate and so on. We have not shut down any of these businesses. But, if you had set a market revenue target of “x” in your strategic plans, and if that suddenly turns out to be 0.7x or 0.8x due to such a situation, you tend to go a bit slower. In December, we injected capital of around Rs 800 crore into our non-banking finance company (NBFC). In an environment when others are pulling back on NBFC lending, our NBFC business is running at full steam.
So, in 2009, we see ourselves focusing on serving our clients during these challenging times and identifying pockets of revenue in a tougher operating environment for banks. We need to touch all sorts of clients — be it individuals, institutional investors for equity investments here, or companies for investment banking. In the next six to nine months, we will be looking to grow our market share and maintain steady revenues.
You have suffered significant losses in fixed income businesses in 2008. How will things improve?
The markets were highly dislocated in the fourth quarter of 2008. We have exited certain proprietary businesses globally and are focusing on more capital efficient areas.
What is the status on your plans to set up an asset management company in India?
There were rumours about our foray into the AMC business in the past, but we do not have any such plan so far. We do manage assets and funds for clients under our portfolio management services (PMS) business which comes under our private banking business. We sold most of our traditional asset management business to Aberdeen Asset Management last year and are now focused on asset management businesses where we are a leader — alternative investments which include private equity and multi-asset class solutions.
Your private equity business also suffered losses last year.
In private equity, we manage third-party funds. In terms of valuation opportunities for private equity though, there is no better time than now. India is an attractive destination. In 2009, we see more private equity investments here. I genuinely believe that there is a lot of money to be invested in private equity here. Players who have already collected capital would be in a strong position to invest.
How much did you raise in private equity in India last year?
Last year, which was the first year in private equity for us here, we did four deals that added up to about $240 million invested in Indian companies. About $150 million of that was invested in the real estate sector.
How do you see the situation evolving in real estate investments?
It looks tough. It will take a lot more time to clear out the backlog of the last three years. The year 2009 is going to be really tough for real estate developers. Two things need to happen for things to revive. One, the supply needs to go down, and two, the price needs to go down. The supply has come in abundance and that needs to correct first.
Do you see the number of private equity deals going down in 2009? What is your target for the year?
No, I believe that funds that have already raised money will complete the transactions. But if you are out in the market to raise a new fund, then it will be hard. For us, private equity in Asia is relatively a new business. But it has great potential and we aim to keep growing it. It needs more time as fund-raising is not easy right now, although we see a lot of opportunities to grow this fund in the future. We invested $240 million last year, and there is undoubtedly scope to grow it on a similar scale this year.
You have announced plans to streamline your investment banking business this year. What are the implications in India?
We were active in certain proprietary and capital-intensive areas that we have now exited or de-emphasised. So, the streamlining was naturally heavier in those areas. Last December, we announced that we would reduce our workforce by 5,300 across the globe. There will of course be some rationalisation in India too, but our businesses here have been more insulated than in many other economies.
What’s your take on corporate earnings for the year ahead?
Corporate earnings will certainly come under pressure. Another 20-25 per cent downside to their present FY10 earnings estimates for the Sensex is possible. We estimate a Sensex earning per share (EPS) of Rs 789 for FY09 and Rs 881 for FY10. While we had been expecting declines in analysts’ estimates, the magnitude was a surprise. Nevertheless, more downgrades are likely. Our expectation of flat-growth-to-decline in revenue over the next few quarters implies profits in FY10 are likely to be down about 20 per cent from FY09. The banking sector is expected to suffer more than other sectors, as this sector hasn’t gone through any earnings strain during the downturn so far.
