Uday Kotak, Founder & Director of Kotak Mahindra Bank, discusses India’s transition from a nation of savers to investors. The country is undergoing a tussle between the saver/borrower and issuer/investor model. In the early 80s, Indian savers had low confidence in financial assets, but gradually moved to bank deposits, UTI, and LIC. In the 90s, investing in equities was considered “speculative,” leading companies to seek capital from foreign institutional investors (FIIs), who saw potential and bought into companies, while Indian savers stayed away.
The private placement market (QIP) was initiated in the early 2000s by SEBI, allowing FIIs to buy on Indian markets. Indian savers’ interest in markets improved after the global financial crisis, leading to increased investment opportunities through mutual fund platforms, cash equities, derivatives markets, insurance funds, global private equity, and lower tax regimes.
To achieve sustained growth in India, key areas include attracting investors post-Covid, avoiding bubbles through policy, regulation, education, and quality paper supply, raising equity at lower capital costs, reevaluating tax arbitrage in debt, and rethinking double taxation on dividends. The banking sector faces challenges in deposits and fund costs, while the large corporate sector must move to capital markets and penetrate mid-sized corporates, MSMEs, and consumers. Acquisition financing and streamlining the IBC/NCLT process are also urgently needed.