Uday Kotak Says Raise Capital From Markets, Don’t Fuss Over Nickels And Dimes

Veteran banker Uday Kotak said Indian companies should use the rebound in markets to raise capital as they look to emerge from the economic crisis triggered by the Covid-19 pandemic.

“At this point we are walking on the cloudy road,” Kotak said after taking charge as president of the industry lobby Confederation of Indian Industry. The capital market has rebounded 35% from the lows, but that doesn’t mean the economy is fine, he said. “We will need to do the hard work.”

The market rebound, however, has provided companies ample opportunity to raise capital, he said. “This is an opportunity for corporate India to get capital. The market may be seeing things which are not visible today. But, over a period of time, we will know who is right.”

The financial sector will have to take the lead in augmenting risk capital, Kotak said. “Individuals and businesses, along with government intervention, will have a limited role. The onus will be on the financial sector.”

Some of this will be compensated by bond gains and the government will have to plan for recapitalisation of public sector banks, said Kotak. Private sector banks and non-banking finance companies will also require adequate risk capital, he said. “The market mechanism is working fine. All financial services companies should raise capital. Don’t fuss over nickels and dimes.”

Priorities: Healthcare, Education

The CII has identified investments in education and healthcare as India’s priority as the nation looks to recover from the crisis.

Kotak said CII won’t give a GDP guidance for the year but instead focus on strategy that covers everything from lives to livelihood. “We are just beginning to come out of the lockdown. Going forward, we may be able to give the prediction on growth. At the end of the year, we may have an average negative growth but need to see the growth on a month-on-month period,” Kotak said.

Real Estate Inventory Debate

He also said there’s a need to destress the real estate industry, one of the biggest employment generators in India. But the sector must clear its inventory, he said. “If the land has been bought at a high price in the past, it is irrelevant today.”

Kotak’s speech comes days after Prime Minister Narendra Modi urged India Inc. to revive the animal spirits, while assuring that the nation will return to its world-beating growth if companies follow the ‘Atmanirbhar Bharat’ route charted out by the government.

Here are the other key highlights of what Kotak said:

• Healthcare and education: Investment in these sectors need to be significantly pushed up. Need to reimagine India from the healthcare point of view with sustainable and qualified manpower.
• Mother Nature: Climate change and sustainability need to be a significant part of the business.
• Fiscal spending and financial stability: Macroeconomic situation is stable as far as external environment is concerned. A warning shot was fired by Moody’s, he said referring to the sovereign downgrade. While ratings are a matter of opinion, it outlines the challenges for India. Need a fair balance between fiscal deficit and financial stability.
• Covid-19 impact: The virus has affected Individuals, individual businesses and the government. In February, most analysts expected fiscal deficit of central and state governments at 6.5%; now it will be around 11-11.5%. The 5% impact is an increase of Rs 10 lakh crore. If individuals and the government are not able to do much, then the impact will come on the financial sector. There’s a need for solid risk capital for the financial sector.
• Digital: Covid-19 has changed the balance between physical world and virtual, he said, highlighting the impact on office space and malls. The virus has fast-tracked the need for upgrading skills in science, environment and digital.
• Future of jobs: Need to reskill has increased as jobs may not be the same as they are currently. Some of the jobs may change forever.
• Rural and urban re-balance: For the first time there has been a reverse migration. People who came from rural areas to urban cities with hopes and aspirations went through huge struggles. Some of them have asked the question: Is this worth it?
• Need to reimagine and figure out how to get more rural jobs and agricultural activities in rural areas and make it the engine of India’s future.
• Animal spirits: Investment, consumption, net exports and government spending are the four levers of growth. India has been dependent on government spending. Entrepreneurs need to get the animal spirits back as private investment is the key to get the sustainable growth back.
• In the short term, there’s a need to get the demand back and put emphasis on increasing net exports.
• Transform ourselves: India needs to start thinking about the life after Covid-19, while we are still dealing with the virus.

These points come within governance, Kotak said. “It means doing things right. We need to have this in all companies, public bodies and institutions.”

Watch CII’s new leadership team outlining the industry body’s priorities: