Kalpana Morparia has opened her stint at JP Morgan with a bang; within a few months of her taking over as chief executive officer, the investment bank has won mandates for several overseas equity issues of large corporate houses, including Tata Power and Tata Steel. Morparia believes there?s ample liquidity in the system for companies to access. She opines that the government?s disinvestment plan will help the fiscal situation and hence, India?s credit rating. In an interview with Akash Joshi, Morparia underlines the need for a strong long-term debt market:
With inflation, especially food inflation, catching up, there is an apprehension that interest rates could rise. Do you think this could impact capex plans for corporates?
I feel food inflation is really a function of the supply-side constraint and it?s also in some ways a function of the insufficient monsoons that we had. I don?t see how interest rates will address the issue. There may be a need to introduce special measures to curb speculative activity. Interest rate changes would only be effective if you saw huge capex activity build up, any particular asset class that showed a huge bubble build up or an enormous over-capacity getting planned. If you talk to any corporate today, no one is talking about not investing in capital markets.
You interact with a lot of corporate executives. So, in terms of funding, what are challenges at the moment?
The equity capital market is proactive. There is ample liquidity for corporates to fund their projects. The concern is really about not having access to long-term fixed income rate funding, particularly for long-gestation and long-payback period projects. So, that will remain until India expands its debt market.
The only other concern that I see is the premature tightening because of certain other indicators that are evident in the economy. If we tighten too quickly, it will once again increase the cost of capital. Eventually, as Indian companies grow, they will have to access public markets because banks? capability to handle a single party or a group party will hit a road block. So,we will have to look at public markets and with greater liberalisation public debt markets will indeed become a reality.
There are a lot of corporates who have raised money in the last several months. Do you see the utilisation of these funds or are they just shoring up their balance sheets?
There is definitely utilisation taking place. If you look at the amount of money raised, almost 50% of it?for want of anything better?was just a de-leverage. The rest of the funds are being funneled for growth purposes. So, clearly, these are companies with solid growth prospects?they have got capital expenditure plans. Also, several of them have projects on the ground.
We saw many big companies raise funds from the ADR/GDR markets. But what about small and medium enterprises? Has the risk aversion level increased for them?
I think that Sebi (Securities & Exchange Board of India) is playing a very proactive role in facilitating institutional issuance in the domestic market and cutting short the timeline for rights offerings and public offerings. Just look at the number of qualified institutional placements (QIPs) that have happened this year. In the absence of a regulatory intervention, a lot of these would have become GDR issuances.
Now with so many QIPs and IPOs being lined up, do you see the supply being absorbed by the local market?
You will see a mix of both foreign and local buying. Until now, you have seen about 30% coming in from domestic investors. The insurance sector is growing as well. Eventually, the pension sector will also open up to equity investment. The domestic market and the FII market will both grow. In the aftermath of the crisis last year, a lot of money moved into the zero-income money market, mutual funds or bank deposits running into trillions of dollars. If you look at the growth, there are only two countries in the world that showing it. I look at 2010 as a year where you will continue to see strong foreign institutional flows. Yes, there will be more discerning investors. It is unlikely that the kind of performance equity markets showed in 2009 will be there in 2010. So, people will look at valuations far more closely.
What do you think the theme for 2010 will be?
The theme will continue to be the GDP growth. When we were forecasting what will happen in 2009, people were sceptical about India recording even a 6% growth rate. But then, we saw the third quarter result being a solid 7.9%. So, I think it will continue to be so. We have got to watch out for growth numbers and some of the legislative changes in terms of reforms. If the government comes up with a cogent plan for divestment in terms of fiscal responsibility, it will allay numerous fears of the rating agencies. So, you would see a re-rating and the credit spreads for India. We should continue to watch inflationary numbers. Consumer credit is picking up so I see growth in credit market definitely.