Dixit A. Joshi has been the Head of Equities for Asia-Pacific at Deutsche Bank AG in Hong Kong since 2011. His economic insight, gift of leadership and force of personality have inspired the staff and made him one of the leading investment bankers in Asia. Earlier, he served as the Head of equities for Europe the Middle East and Africa (EMEA) at Deutsche Bank AG since July 2010.
Joshi tells Pankaj Adhikari about the Indian equity market, the reforms the Modi government should enact and his unique experience of working as an Indian in Hong Kong.
Q: How do you rate the Indian equity market vis-a-vis other emerging markets like China, Russia, Brazil and South Africa?
A: India now stands out as one of the best emerging markets in the world after the strong government outcome during the May national elections. More so after the recent decline in global commodity prices – especially oil . Russia, Brazil & South Africa are quite dependent on commodity exports, while India is a big net importer of oil, gold and coal. Investors are still worried about a hard landing in China but I’m not as negative as expect the PBOC there to cut rates to prevent that from happening. In India, the fiscal and current account deficits are improving sharply, FX reserves are close to an all-time high which has helped improve the imports’ cover. Even on domestic interest rates, the only debate is on when – not if – the RBI will move to cut rates. In all, the macro backdrop is very compelling.
Q: What are the major areas of reform which the Modi government should enact so that foreign investment pours into the country?
A: There are several areas – infrastructure, financial sector, railways, tax policy and government subsidy reduction just to name a few which would benefit from reforms. India has always had immense potential, but has fallen short of expectations in the past. This new government – with a solid parliament majority – has the ability to deliver on many of these reforms. I wouldn’t single out only 2-3 areas of reforms that are important, because India needs a wide range of reforms across many sectors. What’s more important though is not just policy announcements, but actual implementation on the ground (eg single-window clearance for new infrastructure projects)- which we believe the new government is determined to do and capable of doing. We have started to see many reforms come through and expect further structural improvements to raise India’s growth rate to 7/8%.
Q: You said in an interview earlier that the Modi government should not worry too much about the stock market, it should focus on structural reforms…how would you rate the performance of the current dispensation?
A: Indeed, taking a longer-term view, it is critical that core issues that have been neglected until now are addressed. But it is also important to recognize that the government is barely five months into its tenure. India is a huge and complex country with challenges that need to be addressed urgently, but these types of structural reforms do take time. The initial moves by the Modi government have been quite impressive. The deregulation of diesel prices is underway, and food inflation is beginning to come down due to proactive measures like liquidation of surplus food stocks, smaller hikes to farmers’ for crop purchases, cracking down on slippage through middlemen and more. In addition, we are expecting to see more liberalization of FDI in sectors like railways, defense, construction, and insurance, to name a few. There are also more important softer reforms that are beginning to come through, such as making government officials more empowered, accountable and business-friendly, and we have received very good feedback from business experience on the ground. The steps that have been taken to speed up and simplify approvals for making corporate investment easier are refreshing!
Q: Before the new government was formed and its aftermath, we witnessed a sharp rally in the Indian equity market. Do you foresee profit-booking or sustained rally going forward?
A: I had said earlier this year “abki baar tees hazaar” and we are not too far from that! As India’s growth rate steps up in coming years from approx 5% to 7-8%, we are likely to see a sustained rally. Naturally as in every market cycle there will be corrections along the way, but the trajectory is positive.
Q: Since the rally in the Indian market is fuelled by liquidity of foreign fund flow, what is your opinion about gradual withdrawal of QE (quantitative easing) by Fed and prevailing recession in the eurozone?
A: The US QE program has already ended and the markets are anyway aware that Fed rate hikes are coming, although the timing is of debate. On the other hand, the BoJ has stepped up its QE and the ECB may also launch a public QE in coming months. Also, note that even when the QE taper was ongoing, FII inflows into India have been positive – YTD India has seen ~US$13bn of FII inflows into equities while the debt market has seen inflows of ~US$22bn+. Also, don’t forget the increasingly important role of local retail investors who were largely been absent from the Indian equity markets over the last 5 years but have now started investing in equities again. In fact the inflows into local mutual funds in the last 5 months have more than recouped the outflows over the previous 5 years!
Q: Indian economy is consumption driven unlike China where mass manufacturing and infrastructure development have taken great stride. Do you think India should lay emphasis on creating base for mass manufacturing and developing top-class infrastructure to cope with burgeoning population?
A: Yes, of course. The recent focus through Mr Modi’s “Make-in-India” launch shows the government’s seriousness in developing this. India has a huge and growing population of young people with ~15mn people entering the work force every year. All of them simply cannot be absorbed into the services sector nor can everyone come to work to the cities. India needs to follow the East Asian model of manufacturing to help absorb such a large labour force. And a greater focus on manufacturing will help India to grow exports and rely less on imports for manufactured goods. India does indeed have the potential to become one of the biggest manufacturing hubs in the world.
Q: Being an Indian what is so striking about working in HK?
A: The global diversity of this great city is it’s best feature. Hong Kong is one of the most pro-business places I have experienced. Its location is ideal as a hub to run businesses across Asia. The well educated labour force makes growth plans easy to implement, and there is a tremendous spirit of entrepreneurialism across the city that really energizes its economy and markets. The level of true global connectivity that exists here is also very impressive, and with systems and infrastructure on par with the world’s leading financial centers, this is a place where business gets done very efficiently and effectively.
The future for HK remains very bright. I expect China to continue liberalising its markets and as it does Hong Kong is ideally placed to facilitate flows – with a strong regulatory environment, solid local institutions and infrastructure, and deep and growing pools of new capital.
Q: Whilst a successful banker, you also seem to spend much time on social issues – are there many areas of need in HK?
A: Although Hong Kong is by many accounts a very successful and prosperous city, it has one of the widest income gaps with many disadvantaged peoples as well. One of the projects that is closest to my heart is the annual Sewa Day initiative, a cause that I have launched here having successfully championed it in the UK. Every year dozens of volunteers gather together to devote their time to social, environmental and other causes and experience the joy of giving in its truest sense. For the past several years we have partnered with many organizations across Asia – an example is “Food for Life” where fresh hot meals are prepared to distribute thousands of meals to low-income groups here.
Q: You have built a career through many cycles of ups and down in finance – what advice would you give to those looking at this industry
A: I think that beyond the basic foundation of having solid technical skills and knowledge of how markets work, those interested in pursuing a career in finance need to have a very clear understanding of how the industry has fundamentally changed and the direction it is headed. In particular, high standards of integrity and having a long term mindset has never been more critical to success – both to the individual and the firm. If you are able to maintain discipline and focus on prudent, sustainable performance you will be best positioned for success. It remains one of the more interesting and stimulating careers around.
This interview was published in www.theindiandiaspora.com