IFR India CM Roundtable 2010
Indian capital markets are booming. ECM, DCM, loan syndications, infrastructure and M&A are all firing as investors and financiers vie to put their money to work. The tone of IFR’s Indian Capital Markets Roundtable in Mumbai encapsulated the mood perfectly. In a wide-ranging conversation, participants offered up a very positive outlook for the year ahead.
The IFR Roundtable coincided with the Reserve Bank’s September 16th rate hike. The only real surprise - though not a great one - was the 50bp increase in the reverse repo rate. This signalled beyond doubt that the country’s monetary authorities are prepared to risk growth in order to tame inflation.
To US and European observers, that must seem like a nice problem to have: Indian economic growth is running at around 8% and could easily rise to 9%-10% in the near term.
Finding the capital to finance growth is not an issue. Domestic sources of bank, debt and equity capital are readily available. The success of Coal India’s US$3.5bn IPO tells its own story. The largest public listing in Indian history bodes well for the remainder of the disinvestment programme. Using the cash raised from privatisation to cut the fiscal deficit seems all but a slam-dunk.
One of the promising features of the India story is the development of the local capital markets. The rupee loan market is on fire, helped by a borrower psychology that is tending towards borrowing locally.
The corporate bond market has more of a storied history. Volumes have certainly risen, but just as insurance and pension money has entered the market, banks and asset managers have exited. There needs to be a sustained period of patronage by all investor classes to give the market a chance of long-term success.
India still needs foreign capital to plug its savings/investment gap, and this is entering in abundance, despite a restrictive FII regime. One of the flaws of the local capital markets is that Indian investors and the heavily government-controlled banking sector only really play in the Triple A/Double A space, and the local bond and loans markets are skewed towards the short end.
The authorities have an incredible opportunity now to direct foreign capital into areas where domestic sources fear to tread: long-term non-recourse infrastructure financing, long-dated bonds, and speculative-grade debt. RBI and SEBI need to adopt a more pragmatic approach to push capital into these areas.