New Delhi: The country's richest banker and vice-chairman of Kotak Mahindra Bank, Uday Kotak, has expressed concerns over the surging stock market and India's financial savings going into selective stocks only.
"Money is coming to a broad funnel and it’s going into a narrow pipe where massive amount of Indian savers’ money is now going into few hundred stocks. And you come back to the question of how good is the governance of these companies. The amount of money that’s going into small and mid-cap stocks is something on which we have to ask tough questions. You’re pushing all this (money) into a narrow funnel which inevitably runs the risk of a bubble," said Uday Kotak in an interview to Indian Express.
Kotak also headed a Sebi committee which submitted a report last year on changes in corporate governance rules for listed firms. Talking on the same he said, “Keep in mind now you have EPFO money, insurance money, pension, investors’ and savers’ money. People think nothing can go wrong. I would increase my level of alert from the policy point of view and dramatically improve the level of governance and transparency.”
Kotak admitted that conventional savings of the country is now dripping into financial savings, that is more use of mutual funds, systematic planning investments etc. With mutual funds witnessing huge inflows into equity schemes after demonetisation, the Sensex has been hitting new peaks everyday.
"Micro is improving but the speed at which stock prices are going up is even faster… The speed at which stock prices are going up is sheer money power,” he said.
Kotak also raised concern over the high level of foreign ownership in top private sector banks and explained that foreign investors are benefiting from it. Citing the example of HDFC, he said, “More than 80 percent (of HDFC) is foreign owned. Here’s a company whose core business is money from retail savers – Indian house owners. And of the entire gain made by that company, 80 percent belongs to foreign investors.”
Comparing Indian ownership with that of the US, he said the biggest growth companies in the US — Amazon, Facebook, Google, Microsoft and Apple — are majority American owned. “The policy framework should encourage outstanding Indian companies over the next 10 or 20 years. And let broad-based Indian savers over time gain out of that,” he said.
“We have encouraged more and more foreign flows to come in because we have a shortfall in the current account. What have we done? We have basically got some of our jewels majority foreign owned,” Kotak said.
Kotak also made out a strong case for encouraging what he terms “Indian champions”, well-governed companies that are not based on any favours by the government, and the need to broadbase owenership.
The Insolvency Law has helped shift the balance from the debtor to the creditor but compared to three years ago, there has been a 180-degree turn on the economy front, he said, pointing to improving micro factors but a tougher macro – with the current account and fiscal deficit widening.
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