Market may find a new level in about 3 months

Japanese major Nomura entered India in 2007 and then beefed up operations in the country after taking over Lehman Brothers’ Asia business in 2008. Last year, it bought a 35% stake in LIC Mutual Fund. Aggressively hiring, Nomura is emerging as an active player. Speaking to George Smith Alexander, Nomura Holdings deputy president & chief operating officer Takumi Shibata said the firm may launch an infrastructure fund in India even as it plans to hire more for its investment bank and back office operations here.

Any plans to launch a PE fund here?

We are working on an infrastructure fund. For the Indian economy, there is a need to invest more on infrastructure to support this growth. Long-term money is very essential for infrastructure. We are looking at raising funds from global investors as well. We do not know the size of the fund yet but it is not going to be a small fund.

You have been hiring aggressively. Will that continue?

We have to. We have around 3,000 people in India and 130 people in investment banking. We have been hiring quality people at all levels. We have hired around 10 people in the last two months and looking at hiring around 10-15 people in the coming months too in investment banking. Therefore, we are looking at a 10-15% increase. We want to continue to grow and benefit from the global network. We need to reinforce our sales and trading activities over here. Powai, in Mumbai, has the capacity for 4,000 people, but as of now, we have only 2,800 people. We will be increasing the number of people there. Our commitment to India is long-term too.

What are the plans going with the JV with LIC Mutual Fund?

We have been able to finish all the required approval processes. The next phase is to launch the joint venture and the details are being worked out. It will carry the name of LIC Nomura Mutual Fund. We will be able to bring in the benefit of IT and equity fund management infrastructure. We will bring in strong equity capability and LIC will bring in their expertise on the fixed income side. So this is a very good combination.

Are you bringing in your own people into the joint venture?

Yes, we will be bringing in our people and everything will be decided by the joint venture. Some will come from Nomura, some will come from outside. It is actually a very exciting story now.

What about retail broking?

We will look at various opportunities, though there is no such plan as of now. The most important thing is that we do things right so that we build out. We have just established a new group in Tokyo whose job is to look at retail opportunity beyond Japan. I don’t expect anything to come out from them in the very immediate future. They would look at the business opportunities here and I would be very surprised if they don’t look at India. An economy of 300-400 million middle class people is a very attractive market for anyone from the manufacturing side, fund management and private banking potential.

With the economies in the West slowing down, wouldn’t some of the export-oriented economies in Asia see a slowdown?

If we have to divide the world into four, we have the Americas, Europe, Asia and Africa. It is only Europe which is facing the current crisis. What the world needs to do now is, see that a collapse doesn’t happen in Europe and contagion is contained. The growth in countries like China, India and Indonesia are in large parts supported by domestic consumption. Of course, the relative dependence of China on exports is somewhat greater.

We are also sensing a recovery of the US economy. It’s a fragile economy. The risk is a positive surprise on the upside in the States. A 3% growth is a good one. In Europe, because of the decline in the value of euro as a currency, we sense that there are winners inside the eurozone such as manufacture of exports of products coming out from Germany, the Netherlands and northern part of Europe. While we might see total stagnation of the economy in certain parts of Europe, we are not predicting a disaster.

Where are Japanese investors putting their money?

Like other investors across the world, they are staying on the sidelines, especially in the period after the turbulence caused by the Greek debt crisis. We have started seeing a trickle of activity from the retail side — taking positions in currencies, equities, fixed income where they see value. Some currencies went through a huge decline like Australian dollars, we are yet to see a trickling of demand for the euro but people are looking at euro investment opportunities as to when it would become satisfactorily cheap.

You can also say institutions around the world are standing on the sidelines. The big question is whether it’s a three-day cure or a three-year cure and the truth lies somewhere in between. I may be wrong, but I believe it may be a three-month cure. It’s not that the problem would be solved in a three-month period, but the market would probably find a new level of activities in a reasonably short period of time.

Japan’s debt to GDP ratio is quite high and it also has large deficits. Seeing the problems in Europe and an ageing population in Japan too, will this be a problem in the future?

We will have a problem if the government does not solve the problem over the next five years. It’s a five-year challenge as opposed to five months of challenge. The reason is that the debt financing of the Japanese government is funded by domestic savings and the domestic savings are much larger than public debt. As long as the Japanese nationals do not loose confidence in their own government to service debts, even if the debt to GDP ratio is high, it doesn’t cause panic.

And also a 5% sales tax is very low and shows that Japanese people know that there is room for tax hikes. There is a growing consensus in favour of a higher consumption tax, or to say the least, there is capacity for the government to raise taxes without creating huge problem as 5% is very low. So in the long-term, they need to sort out to address the question. They are safe short-term.

Source: http://economictimes.indiatimes.com/Opinion/Interviews/Market-may-find-a-new-level-in-about-3-months/articleshow/6018448.cms?curpg=2