DSP Merill Lynch managing director Monish Mahurkar gives his take on the present Indian debt market and its future course in a wide-ranging interview with Business Standard. Excerpts:
How do you see the present market and policy stance for growth of debt market in India?
The Indian equity markets and trading in government securities have seen growth and substantial reforms. In recent years, Indian companies have raised funds (equity) from both domestic and global markets. Along with equity, corporates will need to tap debt route also.
Hence, the time is ripe for giving impetus to the growth of bond market, especially corporate (which has very small turnover compared to volumes in government paper).
Why would investors, including international funds, find paper (debt instruments for long term) floated by Indian entities attractive?
The valuation of corporate India is now substantial enough to give comfort to investors. There is also change in perception about India. They (investors) are confident about sustainability of 8 per cent plus annual growth of the Indian economy and corporate demand for investments.
With huge resources required for infrastructure projects, how could debt market help corporate and institutions raise funds?
The mutual funds (debt), life insurance and pension funds need long term assets. The infrastructure projects, which have longer gestation period, match the investment horizon of pension and insurance funds.
What reforms need to be in place to spur growth of corporate debt market?
Permitting standard futures contracts in corporate bonds will help bring investors interest. It is more of a long term measure as this needs ground work like establishment of trading and settlement platform. We have seen it working effectively in equity markets.
Similarly, credit default swaps, for which draft guidelines have already been issued, would bring in efficiency. Corporate bonds may not always trade but derivative products provide a tool to take a view of the instrument.
Given the growing international interest in India, allowing foreign institutional investors more freedom will help bring depth to the market. The benefit is, as the scale grows so does the capacity to absorb volatility.
Do the US subprime crisis and tight global credit markets have any downside for growth of Indian debt market?
The state of India debt market is much different form the market in the United States. It has an established market for corporate bonds and we should not draw any inference from the existing US situation for India.
What are your plans for fixed income of DSP-Merrill Lynch in India?
The focus is on activities like structured finance products, alternate assets (aircraft and real estate finance) and private equity.
In structured business, asset-backed securities and SME products have good scope. Under private equity, on proprietary basis, we could pick up, say up to, 15 per cent stake with medium term perspective.