Future is bright says Uday Kotak
Key message was that India is well positioned to regain its share of global GDP. Extreme pessimism over past few days appears overdone as things are never bad as they look and businesses and economy usually turnaround and keep growing. Next 3-6 months will be crucial and should see some recovery. Expect very good opportunity for making long term investment bets in next 6 months. Wealth management and financial services will have to be digital savvy as competition will intensify with the advent of AI and machine learning in investment advisory. That said Human advice will always be valued. Key takeaways are as below:
Global GDP chart from 1AD - China and India had more than 25% share (India peaked at 40%). Average GDP share of China over 2000 years vs today is at parity. India is down to 4-5% and has big catch up ahead.
Thanks to Trump - total pot of GDP is reducing with trade wars and helping India to scale up faster to regain share. India has a good opportunity to regain world GDP share in the near future
Level of pessimism seen over past 3 days - believes things are never as bad as they look nor as good as they look. Key is your ability to manage transformations.
75% of global soverign bonds are at yields below 2%, 35% are at negative yield. 10y German bond yield is -0.5% - wondering why institutional investors are investing in it. India is starved for investment and infrastructure with large working population - best positioned to benefit from global liquidity.
First big challenge is to take a bold view - government has that opportunity. They are barely two months in and have a long time to get things right in this term.
Exports - India businesses are uncompetitive - no country has become a great country without exports. Current account surplus is crucial. Indian savers are buying gold which is a big leakage. Domestic savings is exported to buy unproductive gold while exporting good businesses to FPIs which generate very good returns. Best example is HDFC - 500cr market cap in 1982. Over 37 years it has become more than 350k cr. Indian savers had 100% ownership in 1982 which is now 85% owned by foreigners.
On India - Too much effort has been spent in managing the system rather than building a great global business model. Swacch Bharat in financial sector is undergoing right now. Typical Indian way of washing a dirty white shirt - dhulai with soap and scrubbing with brush. While dhulai is good but we don't want to overdo the dhulai and scrubbing which could tear the shirt. System should be cleansed but care should be taken not to destroy it.
Current situation - Liquidity in the system is 120k cr positive but there is trust deficit in the market.
ILFS journey - framework of governance - six pillars are crucial for well being of any corporate. We cannot move to a sustainable market led economy unless minority investors has confidence on these 6 layers of governance. These are - 1) Management 2) Board of Directors 3) Auditor 4) Rating agencies 5) Institutional shareholders 6) Regulators. We should see significant twist in the tale in next 6-12 months.
Current time is a dream world vs 1982-83. Cant have imagined that India's financial sector would have evolved as it did. Future is Bright.
Advise for government - 1) We should not take capital for granted. Government should go to investors both domestic and foreign saying we respect your capital. Need to ensure that investors get good returns for their risk. 2) Respect creator of jobs. 3) Need to relook whole layer of taxation for risk capital. 35.8% is tax rate plus dividend distribution tax of 20% plus 10% tax if dividend income is higher than 10 lakhs. Effectively its more than 60%. If you manage to make some return on the investment then you pay capital gains tax. Need to collectively work to fix this maybe in next budget.
By: via @AlliesFin Serve T.ME/ALLiESFiN
