India needs to channel more of its savings into equities and the capital markets in order to reduce dependence on foreign capital, Kotak Mahindra Bank executive vice chairman and managing director Uday Kotak said. He was speaking at the western region annual meeting of the Confederation of Indian Industry.
Kotak said India’s saving rate, while on a decline in recent times, is still pretty high. However, the bulk of Indian savings, traditionally, has been risk-averse and a lot of it has gone into more traditional sources, with the amount going into equity risk being relatively lower.
“As a result, what you are seeing, even in capital markets, (is) the disproportionate dominance of international savers in many of our blue-chip companies and a relatively lower focus by Indian savers in putting money into what has been blue-chips over time,” Kotak said, adding, “One of the things we need to do and develop is a stronger equity and a risk culture combined with cutting-edge governance.”
At the same time, things could go wrong if the country were to first build a risk and an equity culture and then have people lose their money. So, both need to evolve at the same time. One of the industries which India needs to develop is the long-term private equity and venture capital industry. “Even today, a disproportionate part of the PE and VC industry is foreign savings, while Indian savings are not getting enough channelised into these segments,” Kotak said.
While the country has seen the development of the mutual fund industry and even equity markets investors taking greater exposure, long-term savings turning into long-term risk capital is an area where more needs to be done. This will require a shift in mindset both for policymakers and savers and that is how domestic capital can supplement global capital. “Global capital is welcome, but we cannot be dependent on it for our destiny,” Kotak said.