- 19 hours ago
India will require massive investment to sustain growth, says Mittal.
Category
đź—ž
NewsTranscript
00:00So without taking too much of time, I'll move on to session like Sakshi mentioned.
00:04We talk a lot about Viksit Bharat.
00:07What does it really mean and how do we really finance it?
00:12So just to put things in perspective how India has done in the last 20-25 years.
00:18So if you look at India's share in GDP, it's tripled in the last 20 years going from 1.1
00:25% to 3.5%.
00:26And if you look at the decadal growth rates, it's moved consistently upwards.
00:32So apart from the COVID years, India has seen a consistent and secular growth driven by structural reforms.
00:40And as the economy has continued to open up.
00:43If you look at the current account deficit and how our exports have done well,
00:47our service exports have doubled from 2% to 4.3% of total global service exports.
00:56Look at inflation.
00:58How we have really tamed inflation in the last 20 years.
01:03And if you really go back and look at 1980s to 1990s,
01:08where inflation used to be more than 10%,
01:11thanks to very disciplined food subsidies, very disciplined food price setting,
01:17inflation target adoption by RBI in 2016,
01:21that consistent 10% inflation has come below 5% for the last 5 years.
01:27And this is across various disruptions in commodities.
01:30And what's really happened because of that?
01:33You look at the government's cost of capital.
01:36So typically, the government cost of capital used to be 8-9%.
01:40If you ask someone, a traditional investor, where would they invest,
01:45they would think of FD and they would say,
01:47fixed income, I get 8-9% and that's what's really changing.
01:53Because of this inflation coming down,
01:55the government's cost of capital is coming down.
01:57It's now close to 6.5%.
01:59So thanks to a consistent and stable inflation,
02:03you know, the government's cost of raising funds
02:05and ability to spend on capital expenditure has really gone up.
02:11And you look how the growth in the economy,
02:14the opening of the economy is creating wealth for investors.
02:17If you look at the SIP flows,
02:19which was just about 5-6,000 crores till 2019,
02:23are now touching 30,000 crores every month
02:26and have really helped counterbalance the FPI outflows
02:29that we have seen in the last, you know, two years.
02:32You look at the DMAT accounts have grown from 3 crores
02:36to more than about 25 crores DMAT accounts right now.
02:40You look at the mutual fund AUM,
02:42which was just hovering about 20-22 lakh crores,
02:45is now touching 86 lakh crores in the last five years.
02:49And that's the wealth that the Indian households have created.
02:54But like we talked about, you know, the Viksit Bharat vision,
02:58and if you look at the Viksit Bharat vision
03:00as the government has envisaged it,
03:01it's not just about economic prosperity.
03:05It's about the social advancement.
03:07It's about the environmental sustainability
03:09and effective governance.
03:12So it's a comprehensive, holistic development of India
03:16and not just about a GDP.
03:18Of course, all of these areas will require a lot of investment.
03:23So just to put things into perspective,
03:25just for urban development,
03:28India will require 900 billion dollars for the next 10 years.
03:32If you look at FOMA,
03:33to get to net zero,
03:35India will require more than a trillion dollars investment.
03:38So all of this put together
03:40will require at least a 20 trillion dollar investment
03:44over the next 25 years.
03:46And if you look at the current financing,
03:4870 percent comes from government.
03:51That's not sustainable.
03:53Ultimately, that has to be financed
03:55through a more long-term patient capital.
03:57And if you look at the 30 trillion vision of the,
04:00you know, the government,
04:02and typically if you look at most of the advanced economies,
04:0530 to 40 percent of their GDP
04:08is financed through the bond market.
04:11So even if you assume a 30 percent bond to GDP ratio
04:14and you assume a 92 USD INR,
04:20the bond market will have to grow
04:22at least by 15 times in the next 20 years
04:26if we really have to reach our Viksir Bharat vision
04:29or even 20 times,
04:32you know, as the bond market grows.
04:34So that's the kind of growth rate
04:36which is required in the next 20 years.
04:39Can it be done?
04:41If you look at the equity market
04:42as a percentage of GDP,
04:45largely it was hovering around 75 to 80 percent.
04:48But today if you look at,
04:50you know, equity market as it has grown,
04:52it's now reached 140 percent of our GDP.
04:56If you look at the bond market,
04:58while our annual issuance has grown
05:00from 5 lakh crores to 10 lakh crores,
05:02as a percentage of GDP,
05:04it stayed quite stable around 16 percent.
05:07So that's the new lift that we have to do.
05:10If you look at the comparison
05:12with respect to different economies,
05:14U.S. is 37 percent,
05:16China is 38 percent.
05:17If you look at South Korea,
05:19that's 79 percent,
05:20so on and so forth.
05:21So most of the Asian economies
05:23are about 50 percent,
05:24U.S. 40 percent.
05:25So that's the kind of growth
05:26and that's the kind of leap
05:27that we have to take.
05:30And even if you look at the rating breakup
05:33of current issuance,
05:34most of the issuance
05:36is concentrated in AAA.
05:40Which are the entities
05:41which require the capital the most?
05:44Those are not just AAA.
05:45That's in fact the lower rated investments.
05:52So what will really require
05:53the bond market
05:55to develop going ahead?
05:56And where should the government
05:57priority should lie?
05:59One is of course
06:00the broadening the credit issuance.
06:01Like I said,
06:02we need to move beyond AAA.
06:04We need to be able
06:06to provide capital
06:06to growing companies.
06:08What we have seen in equity,
06:09the same has to happen
06:10in bonds as well.
06:12Investor base.
06:13Largely right now,
06:15most of the bond investments
06:17is carried out
06:18by ultra-H&Is
06:19or some select
06:20financial institutions.
06:21We have to really broad base
06:23so that the retail investors,
06:25just like they have participated
06:26very strongly
06:27in our equity culture,
06:29that fixed income
06:30also becomes ingrained
06:31as part of our
06:32retail investment philosophy.
06:35If you look at the market structure,
06:37so while we have
06:37great set of regulations,
06:39they have really evolved
06:40in the last 10 years.
06:43They have to be harmonized
06:44across various investor classes
06:46so that investments
06:47can be seamless
06:48across different
06:50financial institutions.
06:51Again, risk transfer.
06:54That's a very, very critical part
06:56of the bond market
06:57that as a bond holder,
06:58can I hedge my risk,
07:00which I can do currently
07:01in other asset classes.
07:03Development of a CDS market
07:05and of course, taxation.
07:08Taxation has to be neutral.
07:10So whenever an investor
07:11has to choose
07:12between an asset class,
07:14he or she should be able
07:16to choose
07:16on the merit
07:17of the asset class
07:18rather than
07:19on the tax treatment
07:20of the asset class.
07:22And of course,
07:24resolution and recovery.
07:26In bond,
07:27if the issuer defaults,
07:29how fast I am able
07:31to recover those dues.
07:35So like I said,
07:36if you look at the,
07:37you know,
07:37how it's stacked up globally,
07:41and if you look at the,
07:42for example,
07:42US or European Union,
07:45most of the bond issuance
07:46happens in less than AAA.
07:48In fact,
07:48it happens in A plus rated assets.
07:51For example,
07:51if you even look at China,
07:5450% of issuance
07:56happens in lower rated issuers.
07:58Only 50% happens in AAA.
08:00If you look at India,
08:0270% of the issuance
08:04happens in AAA.
08:08So what does it really require
08:09to broaden credit issuance?
08:11What does it really require
08:12so that more lower rated entities
08:15come into the market?
08:16One is,
08:17right now,
08:18we have a requirement
08:19from corporates
08:20that they have to issue
08:2125% of their incremental borrowing,
08:24but that's over a period
08:25of three years.
08:26that needs to be made
08:28into an annual exercise
08:29so that every year
08:30there is regular supply
08:32of corporate bonds
08:33to the bond market.
08:35Secondly,
08:36public issuances,
08:38the very foreign few.
08:40They really need to step up
08:42so that retail investors
08:44regularly look at bonds,
08:46they consider bonds,
08:46and it becomes part
08:48of their investment behavior.
08:49Third,
08:50partial credit enhancement mechanism.
08:53Globally,
08:54partial credit enhancement mechanism
08:56is a credit guarantee mechanism
08:58where in case
09:00an issuer defaults,
09:02the first loss
09:03or the loss
09:04can be recovered
09:04from the partial credit
09:06enhancement provider.
09:07In India,
09:08it has to be repaid
09:10within 90 days.
09:11So it's more
09:12of a liquidity backstop
09:14than really a credit guarantee
09:16given by an issuer.
09:18Secondly,
09:19globally,
09:19a bank can invest
09:22in a bond
09:22which is partially
09:23credit enhanced
09:24by another institution.
09:26In India,
09:27a financial institution
09:28cannot buy a bond
09:29which has been enhanced
09:31by another institution.
09:32So that's probably
09:34if we are able
09:35to overcome
09:35some of these challenges,
09:37this market
09:38can really revive
09:39and some of the
09:41sub-investment grade
09:42or investment grade bonds
09:44which are probably
09:45not in the AAA
09:45or the AA realm,
09:46they can get
09:48better rated
09:49and they can issue
09:50bonds more frequently.
09:52Second,
09:53MSME bond aggregation.
09:54We talk a lot
09:54about MSME and SMEs.
09:57Right?
09:58How does
09:58globally,
09:59how do they issue
10:00bonds?
10:01So globally,
10:02we have seen
10:03in European Union
10:03and US as well,
10:05they pool their
10:06bond issuances
10:07into a SPV.
10:09So let's say
10:09it could be
10:10100 MSMEs
10:11pooling all
10:12their requirements
10:12into one single SPV
10:14and banks
10:15and other investors
10:16buying that
10:16particular SPV bonds.
10:18So that gives
10:19a credit diversification
10:20to that investor
10:21and it also
10:22helps those
10:23small entities
10:23raise bonds
10:24from the capital
10:25market.
10:28This is a
10:28secondary market
10:29activity in
10:30corporate bonds.
10:32It's,
10:33as we can see,
10:34it's less than
10:341%.
10:36In any year,
10:37it's not even
10:37crossed 0.5%.
10:40And if I look
10:41at the rating
10:42again,
10:43what we saw
10:43in previous
10:44slide,
10:4470%
10:46of the issuance
10:48was in AAA
10:48and if we look
10:49at trading,
10:5080%
10:52of the trading
10:53happens in AAA.
10:54If you look
10:55at maturity
10:55wise,
10:5660%
10:57of,
10:58you know,
10:59bonds which
10:59get traded
11:00are less
11:02than 3 years.
11:02So there is
11:03virtually no
11:04trading happening
11:05in long-term
11:05bonds.
11:06There is virtually
11:06no trading
11:07happening in
11:08lower-rated bonds.
11:09That's something
11:10which we have
11:11to address.
11:12And if we
11:13compare even
11:13to Southeast
11:14Asian economies
11:15or compare
11:16it to China,
11:16that's about
11:17three times
11:18lower.
11:21So how
11:22can we
11:24really achieve
11:24it?
11:25We don't
11:26have a concept
11:26of market
11:27makers in
11:28India which
11:29can regularly
11:29provide two
11:30ways to
11:31financial
11:31institutions.
11:32So globally,
11:33how does
11:34market making
11:34system work?
11:35So firstly,
11:36market makers
11:37are encouraged
11:38by continuously
11:41quoting on
11:42various exchanges
11:43regarding those
11:44particular bonds.
11:45And secondly,
11:46they are exempt
11:47from exchange
11:48fees.
11:49Thirdly,
11:50they also get
11:51set off or
11:52waving off of
11:53capital requirements
11:54on their market
11:55making inventory.
11:57If we are able
11:58to do some of
11:59these aspects
11:59where we are
12:00able to provide
12:01capital exemption
12:02to these market
12:02makers,
12:03we are able to
12:04set off their
12:04transaction fees,
12:05probably we can
12:07also encourage
12:08market makers
12:08to provide
12:09these bond
12:10codes regularly
12:11on the exchange
12:12and encourage
12:14trading on
12:15various exchanges.
12:17Secondly,
12:18corporate bond
12:18repo markets.
12:19So we have
12:19made a great
12:20start.
12:20Now we have
12:21a corporate
12:22bond repo
12:22platform,
12:23but that's
12:24largely again
12:26concentrated in
12:27AAA.
12:28That's exactly
12:29what we saw
12:30that most of
12:30the trading is
12:31happening again
12:32in AAA
12:32assets.
12:33We need to
12:34allow those
12:34platforms to
12:36allow for
12:37and provide
12:38for repo
12:39in lower
12:39than single
12:40A rated bonds
12:41as well,
12:42so that people
12:44who want to
12:44trade high
12:45yield bonds
12:46can do repo
12:47and get
12:48liquidity against
12:49those bonds.
12:51Thirdly,
12:53many of the
12:54long term
12:54investors today
12:55are restricted
12:56to invest
12:57only in assets
12:59which are
12:59AAA and
12:59AA+.
13:00They are not
13:01even allowed
13:02to do credit
13:02due diligence
13:03and invest
13:04in lower
13:04rated bonds.
13:05That's
13:06something which
13:06we need to
13:07really step
13:07up.
13:07We really
13:08need to
13:08allow globally.
13:10In fact,
13:10most of the
13:11high yield
13:11investing is
13:12done by
13:13long term
13:13capital
13:14providers
13:14because they
13:15are looking
13:15at these
13:16investments
13:16from a
13:17more 10
13:17year,
13:1720 year
13:18horizon.
13:19They have
13:20the patience.
13:20They can
13:21keep these
13:22assets.
13:22Even if
13:23these assets
13:24seek
13:24correction,
13:25they are
13:26not in a
13:26hurry to
13:27liquidate.
13:28That's
13:28something which
13:29we can
13:29address it
13:30if we allow
13:31some of
13:31the long
13:32term capital
13:32providers to
13:33invest in
13:34lower rated
13:34bonds.
13:36Secondly,
13:38non-institutional
13:39participation.
13:40So, for
13:41someone who is
13:42investing in
13:42equity and
13:43for someone who is
13:44investing in
13:45bonds, the
13:46information
13:46requirements are
13:48very, very
13:48different.
13:49And secondly,
13:50they need to
13:50be regular.
13:51If you would
13:52see today,
13:53most of the
13:53bond investors
13:54don't get
13:55information when
13:56they have to
13:57invest in bonds.
13:57They need
13:58information on
13:59various bond
13:59covenants.
14:00They need
14:01information on
14:01the issuer.
14:02They need
14:03financial
14:04information,
14:05management
14:05information.
14:05They don't
14:06get at a
14:07consistent
14:07format.
14:08That's
14:09something which
14:09we can do
14:10and help
14:11non-institutional
14:13investors get
14:13that information
14:14which will
14:14increase their
14:15activity.
14:15Because
14:16institutional
14:16investors can
14:17pick up a
14:18phone and get
14:18that information.
14:19It's very
14:19difficult for
14:20non-institutional
14:20investors to
14:21get that same
14:22information from
14:23the various
14:24issuers.
14:24For example,
14:25in China,
14:26there is a
14:26self-regulatory
14:28body called
14:28NAFMI which
14:29includes about
14:309,000 investors
14:32which are banks,
14:33insurance,
14:34mutual funds,
14:34etc.
14:35And every
14:36issuer who
14:37wants to come
14:37to the market
14:38whether it's a
14:38public issuance
14:39or a private
14:39issuance,
14:40it has to be
14:41certified by
14:42NAFMI that
14:43it has given
14:44all the
14:44information at
14:45one place in
14:46a consistent
14:47and standardized
14:48disclosure format.
14:49And that's
14:50what really gives
14:51confidence to
14:52detail investors
14:53that all the
14:54information is
14:55there for me to
14:56analyze,
14:56whether to
14:57invest in
14:57that bond
14:58or not.
14:59I think if
14:59we have a
15:00unified central
15:01repository,
15:02it will give
15:02a lot of
15:03confidence,
15:03it will give
15:04a lot of
15:04information for
15:05investors to
15:06take that
15:07investment
15:07decision.
15:11Secondly,
15:11you know,
15:12CDS market,
15:13like I said,
15:14in equity,
15:15if my view
15:16goes wrong,
15:16it's very easy
15:17to exit.
15:18If in bonds,
15:19my view goes
15:19wrong,
15:20it's very
15:21difficult to
15:21exit in an
15:22illiquid market
15:23and hence
15:23development of a
15:24CDS market
15:25is very
15:26critical.
15:26And why
15:27has CDS
15:27market not
15:28taken off
15:28despite so
15:29many,
15:29you know,
15:30relaxation of
15:31regulations by
15:32the various
15:33regulators?
15:34One of the
15:34reasons why
15:35global markets
15:36have developed
15:37CDS is they
15:38started with
15:39indices.
15:40So they did
15:40not start with
15:41particular CDS
15:42on issuers,
15:43they started
15:44with index.
15:44So for
15:45example,
15:45if I'm a
15:47bank and I'm
15:47carrying credit
15:48risk and I
15:49want to hedge
15:50my, for
15:51example,
15:51microfinance
15:52portfolio and
15:53if I have a
15:53microfinance
15:54CDS index,
15:55I can hedge my
15:56portfolio against
15:57that index.
15:59So index and
16:00if you look at
16:01European Union,
16:02about 80% of
16:03CDS volume comes
16:05through bond
16:06indices.
16:07So it's not
16:08through specific
16:09issuers, it's
16:10through bond
16:10indices.
16:11That's something
16:12which we can do
16:13to encourage,
16:14you know,
16:14hedging of risk
16:15by various,
16:16you know,
16:17corporate bond
16:18investors and
16:19that can really
16:19help provide
16:20better liquidity
16:21in the secondary
16:22market as
16:23well.
16:24Second,
16:25broaden the
16:26protection seller
16:27base.
16:28So if you look
16:28at the global
16:29CDS market,
16:31again,
16:31most of the
16:32CDS underwriting
16:33is not done
16:34by the banking
16:34system.
16:35Banks are
16:36already carrying
16:37credit risk.
16:38It's by the
16:39long-term
16:40investors who
16:41have patient
16:41capital who
16:42underwrite that
16:43insurance and
16:45take that extra
16:46income in a
16:47hope that if
16:48you have, you
16:49know, well
16:49diversified CDS
16:50protection against
16:51500 issuers,
16:52overall, one
16:53can make decent
16:54return.
16:54So it's the
16:55long-term
16:56investors who
16:57have, who
16:58can provide
16:58CDS much
16:59more effectively
17:00than the
17:01banking system.
17:04Recovery
17:05infrastructure.
17:06So if you
17:06look at the
17:06current recovery
17:07channels and
17:08we have tried
17:09various forums
17:09and the
17:11current IBC
17:11recovery, if
17:12you see,
17:13already we are
17:14seeing very,
17:14very strong,
17:15you know,
17:16improvement.
17:16So right
17:17from 2%
17:18recovery in
17:19low
17:19kadalat, 9%
17:21recovery in
17:21debt recovery
17:22tribunals, we
17:23have reached a
17:2432% recovery
17:25in the IBC
17:27Act.
17:28The only
17:29aspect I
17:29think which we
17:30can probably
17:30improve is the
17:32resolution time.
17:33So the average
17:34resolution time so
17:35far is about
17:36700 days, which
17:37is double the
17:38statutory limits,
17:39which, you
17:40know, which is
17:40330 days.
17:41So one of the
17:42very important
17:43aspects of
17:44distressed debt
17:46investing globally,
17:47so whenever any
17:48asset reconstruction
17:49company, any
17:50stressed asset
17:51hedge fund decides
17:52to invest in
17:54these entities,
17:54they need clarity
17:56on the resolution
17:56timeline.
17:57That if I were to
17:59invest 30 cents
18:00for the dollar in
18:01this entity, how
18:02much time will
18:03that issue get
18:03resolved?
18:04So probably once
18:05we have more
18:06certainty and
18:07tighter resolution
18:08timelines, probably
18:10our distressed debt
18:11market can also
18:13revive and could
18:14also help the
18:15banking system get
18:16rid of its, you
18:17know, bad assets.
18:21Largely, and of
18:22course this is
18:22very, you know, one
18:23very important
18:25aspect which is
18:26really taking off,
18:26which is private
18:27credit.
18:28So again, like
18:29we said, you
18:30know, most, in
18:31fact, the biggest
18:32user or the
18:33biggest requirement
18:34from bonds don't
18:35come from triple
18:36A or double A
18:37plus entities.
18:38They can get
18:38capital anywhere.
18:39It usually comes
18:40from entities
18:41which are lower
18:42rated, small
18:42size, and they
18:44require credit.
18:44And that's where
18:45private credit also
18:46helps.
18:47So while we are
18:47growing, but just
18:49a word of caution,
18:50we are already
18:50seeing the
18:51repercussions of
18:52private credit
18:53globally.
18:54So India has
18:55developed a very
18:55good, you know,
18:56CAD2 system of
18:57private credit
18:58where redemptions
18:58are not usually
18:59done.
19:00It's mostly
19:00closed-ended.
19:01That's something
19:02which I think we
19:02have to stick to
19:03to ensure that
19:04the private credit
19:05system sees
19:06healthy.
19:07One other aspect
19:08where we can
19:08probably bring
19:09more transparency
19:10is valuation.
19:11So if we can
19:12bring in consistent
19:13valuation norms
19:14across the private
19:15credit industry
19:16that can help
19:17investors evaluate
19:18the performance
19:19of funds much
19:20more effectively.
19:21And thirdly,
19:23we should channel
19:23only long duration
19:25and accredited
19:26investors into
19:27this category to
19:28ensure there is
19:29no mismatch of
19:30investor expectations.
19:33So lastly,
19:34like, you know,
19:35the key takeaways
19:36just I, you
19:37know, wanted to
19:37bring about,
19:38like I said,
19:40India, it lasts
19:4130, 40 years.
19:43We have seen
19:43very, very strong,
19:44you know, growth.
19:46We have set the
19:47foundation.
19:48What we have seen
19:49in equity,
19:50the hard work
19:51which we have
19:52been doing since
19:521990s is paying
19:54already in
19:55equities.
19:56Now, the
19:57foundation which
19:58has been set by
19:59equity can really
20:00take off big time
20:01and pay us rich
20:02dividends in
20:03fixed income as
20:04well.
20:04If you look at
20:05the private sector
20:06balance sheets,
20:07they are very
20:08under leveraged.
20:09If you look at
20:10banking balance
20:10sheets, they are
20:11the strongest in
20:12last 20 years.
20:13So this is a
20:14very, very good
20:15time and
20:15opportune time to
20:17diversify for
20:18these banks as
20:19well as these
20:19corporates to
20:20raise more debt
20:21and to help
20:22finance in their
20:23India development
20:24story.
20:25So that's largely,
20:26you know, what I
20:27want to touch upon
20:28and thanks a lot
20:29for listening in and
20:30hope you found
20:31the session useful.
20:42Thank you so much
20:43Anurag and thank
20:43you so much
20:44audiences and we
20:45are going to be
20:45now having a
20:46quick chat with
20:47Anurag to of
20:48course detail for
20:49all of us as to
20:50how do we
20:50understand the
20:51way ahead for
20:52the bond market,
20:53the fixed income
20:53market as well.
20:54Anurag, please
20:55have a seat.
20:56So as we are
20:57moving forward to
20:57this vision of
20:58Vixit Bharat 2047,
21:00do help me
21:01understand where
21:01are we at when
21:02it comes to the
21:03fixed income
21:03market and how
21:04much do we need
21:05to grow, how
21:06much does the
21:07market need to
21:08deepen and become
21:09more efficient so
21:10that we can
21:10fulfill all those
21:11dreams of ours.
21:13So, you know, like I
21:14was mentioning in the
21:14presentation, so
21:16typically if you
21:17look at most of
21:17the advanced
21:18economies, the
21:19bond market
21:20typically is 30 to
21:2140% of the GDP.
21:23I mean, that's
21:23what we have seen
21:23in the US, China
21:24or any other
21:25economy that you
21:26pick.
21:26Right now, our
21:27bond market is
21:28just 16% of our
21:30GDP.
21:30So it really, and
21:32if we have to reach
21:33the 30 trillion
21:34market size, our
21:36bond market needs
21:37to become about
21:3730% of that, so
21:38a 9 trillion
21:39dollars bond market.
21:40So broadly, it
21:42needs to grow at
21:43least by 15 to
21:4420 times in the
21:46next 20 years if
21:47we have to realize
21:48our vision because
21:50you cannot just rely
21:51on one asset class.
21:52You just like an
21:53investor, a
21:55corporate or the
21:56government needs to
21:57rely across multiple
21:58asset classes to
21:59ensure consistency
22:00and stability of
22:01their, you know,
22:02funding profile.
22:03Absolutely.
22:03And Anurag, we
22:04always see that,
22:05you know, headlines
22:06are usually captured
22:07by the equity
22:07markets, but when
22:08it comes to
22:09financing, the
22:10vision of a
22:11nation, nation
22:12building happens
22:13on bond
22:13financing.
22:14So give us an
22:15understanding, you
22:16know, when it
22:17comes to fulfilling
22:18all these
22:19infrastructure hopes
22:20that we have
22:20highways, roads,
22:23airport infra, you
22:24know, data
22:24centers, semiconductors,
22:27so much is going
22:28to happen over the
22:28next 5 years, 10
22:29years, odd.
22:30Give us an
22:31understanding, what
22:32is the kind of
22:33role that the
22:34fixed income
22:34market will play
22:35over the next two
22:36decades to help
22:38build this infra?
22:39Right, so if you
22:40look at the
22:40infrastructure
22:41requirements alone,
22:43we require about
22:4420 trillion dollar
22:45investments in
22:47infrastructure in
22:48next 20 years.
22:49And this is
22:49without accounting
22:50for green
22:51transition, this is
22:52without accounting
22:53for urban
22:54transition, this is
22:55without accounting
22:56for social sector
22:57spending.
22:57Right now our
22:58social sector
22:59spending is about
23:004-5% of our
23:01GDP.
23:02Typically advanced
23:03economies spend
23:0315% of their
23:05GDP in social
23:06sector.
23:06So if I put
23:07all of this
23:07together, we
23:09actually require
23:09much more than
23:1030 trillion dollars
23:11over the next 20
23:13years.
23:14And if you see
23:15most of the
23:15advanced economies
23:16or even the
23:17economies which
23:18have become
23:18middle income
23:19from lower
23:19income such as
23:20China for example
23:21or South Korea,
23:23most of this
23:24investment came
23:25from fixed income
23:27rather than, you
23:28know, equities.
23:29Because if you
23:30require 20-25
23:31year capital, that
23:32is most effective
23:33and most cost
23:33sufficient for
23:34anyone from a
23:35fixed income
23:35standpoint.
23:36Right.
23:36When we also
23:37talk about the
23:38corporate bond
23:38market and when
23:39we compare
23:40ourselves globally,
23:41we are still
23:41pretty small.
23:42So what do you
23:43think is essential
23:44to drive the
23:45next phase of
23:46growth when it
23:47comes to
23:47corporate bond
23:48market?
23:48So in the
23:49corporate bond
23:50market, I think
23:50if you look at
23:51the highest rated
23:52borrowers like
23:53AAA rated borrowers,
23:54I think that's
23:55still quite efficient
23:56for them.
23:56They are able to
23:57raise funds quite
23:58effectively.
23:58But I think a
23:59lot can be done
24:00for lower rated
24:01borrowers because
24:03they require the
24:04capital the most.
24:05And I think if
24:06we are able to
24:07encourage long
24:08term capital
24:08providers in our
24:09country to
24:10invest more in
24:11the lower rated
24:12assets because
24:12they have a more
24:13long term investment
24:14horizon, 10 years,
24:1515 years, 20
24:15years, probably
24:17they have the
24:18patient capital to
24:19invest in these
24:20entities and also
24:21reap the benefits
24:22because many of
24:23these entities are
24:24providing 400,
24:25500 basis points
24:26extra yield than
24:28those AAA
24:29entities.
24:29So it's a win-win
24:30situation for those
24:31entities as well as
24:32for those long term
24:33capital providers.
24:34So Anurag, I
24:35think one major
24:36concern that has
24:37been emerging over
24:38the last couple of
24:39years, it's become a
24:40topic of discussion
24:42as well, is that
24:43when we are looking
24:44at financing such
24:45big dreams,
24:46especially the
24:47government is going
24:47to be requiring so
24:48much of capital,
24:50what are the ways in
24:51which we ensure
24:52that at least
24:53crowding out of
24:55private market is
24:56not done or
24:56private capital is
24:58not done just
24:59because the
24:59government needs so
25:00much more capital
25:01itself?
25:02So I think that
25:03can only come to be
25:04honest from higher
25:05growth because the
25:07more our nominal
25:08GDP grows, I mean
25:10that's one of the
25:11probable reasons where
25:12the fiscal deficit of
25:14the government can
25:15come down and the
25:16crowding in of the
25:18private sector can
25:18happen.
25:19I think secondly, just
25:20like we have
25:21encouraged a lot of
25:22FDI and equity, so
25:24there is a funding
25:25gap in equity.
25:25So just like we
25:26have encouraged
25:27external capital
25:28equity, we can
25:30encourage external
25:31capital and fixed
25:32income as well.
25:33We are providing one
25:34of the highest returns
25:35in the world.
25:36We, you know, overall
25:38our currency has been
25:38quite stable if you
25:39look at longer term.
25:40So I think that's
25:41something which foreign
25:42investors typically
25:43like.
25:44So Anurag, when it
25:46comes to the individual
25:47investors, let's come
25:48to that as well.
25:49A large part, we were
25:51also talking about it
25:52before this session
25:53also began, that
25:54what we notice as
25:55individual investors
25:56is that either our
25:58investment portfolios
26:00are skewed towards
26:01absolute safety when we
26:02look at maybe FDs or
26:04we are extremely, you
26:07know, risk taking and
26:08therefore we are
26:08looking at equities or
26:10maybe even cryptocurrencies
26:11for that matter.
26:12But it's the bond
26:14market, the fixed income
26:15market, the opportunities
26:17that they are currently
26:18hovering, they are
26:19still away from the
26:20investment portfolios of
26:22individuals.
26:22So what is the need
26:24of the hour?
26:24Why do you think in
26:25this current VUCA world
26:27we do need, you know,
26:29the investments towards
26:30fixed income and how
26:31can they stabilize
26:32investment portfolios of
26:34individuals?
26:34Sure.
26:35So I think you're
26:36absolutely right.
26:37Right now fixed
26:38deposits, you know,
26:39a dominant, I would say,
26:41vehicle for fixed income
26:42investing for investors.
26:43But if you look at the
26:44global example, even
26:47when bond yields in
26:48Europe were 1%, 2% and
26:50not really attractive in
26:51equity markets were much
26:53higher, even then we saw
26:5430-40% consistent
26:56allocation from European
26:58investors or the
27:00investors in U.S.
27:01towards fixed income.
27:02The reason being, for
27:03example, what we have seen
27:04in the last 18 months in
27:05the equity market, the
27:07volatility has been quite,
27:08you know, high.
27:09And especially, I think,
27:11like you said, on the
27:11VUCA world, which is a
27:12slightly more volatile
27:13world, I think fixed income
27:15can provide a very good
27:17counterbalance to that
27:18equity volatility in these
27:20times.
27:21And for retail investors, a
27:23multi-asset allocation
27:24strategy or multi-asset
27:25allocation fund, which
27:27invests in fixed income,
27:29equity, and gold, can
27:31provide a very good
27:32uncorrelated return profile
27:34across business cycles.
27:35Because there will be
27:36business cycles where one
27:37asset class will tend to
27:39outperform.
27:39And especially when we are
27:41talking of AI, when we are
27:42talking of disruption due to
27:43AI, we are likely to see a
27:46period of high disinflation
27:47at some point of time.
27:49At that point, fixed income
27:52can do really well for you.
27:54Fixed income can do very
27:56well, especially in these
27:57uncertain times, volatile
27:59times that we are looking
28:00at.
28:00There are wars, there is
28:02policy uncertainty.
28:03So you do need an
28:04essential allocation to
28:05fixed income to your
28:06portfolios as well.
28:08But, you know, there's also
28:09this fear that, you know,
28:11corporate bonds, they make
28:12entry very easy, but exit
28:14somehow difficult for
28:16investors.
28:16And that's probably one
28:17reason why most of the
28:18individual investors don't
28:19really go into for that.
28:21What is the reason behind
28:22it?
28:22Is it a fact or is it a
28:24myth?
28:24Could you detail for us
28:26what exactly we should
28:27know?
28:27It was absolutely a fact
28:28till some years back.
28:29But what's really happened
28:31and thanks to SEBI, they
28:33have really reduced the
28:34principal size for bonds.
28:35So now, even if you want
28:37to invest for 1 lakh, you
28:39can easily invest in the
28:40multiples of 1 lakh on the
28:42various online bond
28:43platforms.
28:44If you want to invest as
28:46low as thousand rupees or
28:47500 rupees, you can come
28:49to a mutual fund, fixed
28:50income mutual fund and
28:51invest, you know, even if
28:53you want to do a low
28:54ticket.
28:54So from a liquidity
28:55perspective, a lot has
28:57happened.
28:57You can invest in debt
28:58mutual funds, you can
28:59invest directly in bonds
29:00and it's relatively quite
29:02easy to enter as well as
29:04easy to exit now.
29:06Lastly, you know, to
29:07benefit a large part of our
29:09audiences here and those
29:10who are watching us on
29:11television as well, you
29:13know, give us an
29:14understanding of how
29:16should one be really
29:17devising strategies towards
29:19their portfolios if one
29:21has a 10 year, 20 year
29:23horizon.
29:23So we also want to grow as
29:26the nation also moves towards
29:27Vikasid Bharat.
29:29We want our individual wealth
29:30creation, individual dreams to
29:32get fulfilled as well.
29:34So in that kind of a scenario,
29:36if somebody say for a very
29:37start, we'll take a very basic
29:39example.
29:40The first goal that perhaps any
29:43investor would have is to maybe
29:45create wealth, one crore.
29:47If that is the aim, then how do
29:49we begin?
29:50What kind of allocation goes
29:51to fixed income?
29:52What kind of products come in
29:53and what would be a perfect
29:55investment portfolio like?
29:57Sure.
29:58I think, of course, there's no
29:59one size fits all for every
30:01investor.
30:01But typically what we have
30:03seen globally in the last 40,
30:0450 years and what we have seen
30:06working in India as well, if
30:08our investor has a certain, you
30:09know, long term investment
30:10horizon in mind, which is 10,
30:1120 years, a 60 to 70 percent
30:14allocation towards equity, a 15,
30:1620 percent allocation towards
30:18fixed income and probably a 10
30:20percent allocation towards
30:21commodities.
30:22It could be gold, silver.
30:23It could be in-wits or REITs,
30:25which provide a good alternate
30:27source of capital, you know,
30:28for the investors.
30:30Within fixed income, I would say
30:32a typical Indian investor is a
30:34FD investor, like we all said.
30:36So just like in a FD, there is a
30:38very low interest rate risk or a
30:40very low credit risk.
30:41An investor, when they're
30:43investing in fixed income, should
30:44also invest in those funds which
30:46have moderate duration as well
30:48as moderate credit risk.
30:49So funds like short term fund or
30:51a corporate bond fund or now a
30:53new category, which is the
30:54income plus arbitrage funds.
30:56These are very appropriate
30:57categories for risk averse
30:59investors.
31:00Never forget, you are coming in
31:02fixed income for predictability
31:04and stability.
31:04So that has to be the reason,
31:07the yatra for investing in fixed
31:09income in the first place.
31:10That's something which always keep
31:11in mind when investing.
31:12So over the next 5, 10 years or
31:1520 years period, what is the kind
31:16of interest rate growth that we
31:18can expect on our fixed income
31:20investments so that people have
31:22more idea as to how much of my
31:24allocation should go because this
31:26is going to be definitely giving me
31:28a particular percentage of
31:29interest.
31:30So how do you see that?
31:31Sure.
31:32So if you like, you know, I was
31:33explaining in one of the charts
31:35earlier, we are used to a certain
31:37interest rates in India and that's
31:39because of a historical inflation
31:40legacy, right?
31:42So as so typically if you ask
31:44anyone, what's my return, you
31:45know, what's the return minimum
31:46expectation, they would say
31:47minimum double digit to hona
31:48chahiyei.
31:49Yeah.
31:49So the because of a 10 percent
31:51inflation legacy.
31:52Now that as inflation that comes
31:54down from 10 percent to 4 percent,
31:57your nominal GDP will also come
31:58down accordingly.
32:00And the return expectation both
32:02from equity and fixed income
32:03should come down.
32:05So broadly, if I take a four,
32:07four and a half percent average
32:08inflation for next, you know,
32:10at least in the near term and I
32:11take some risk premium and term
32:13premium, typically government
32:15bonds would trade at a certain
32:17premium over inflation and
32:19corporate bonds maybe 100 to
32:20150 basis over that.
32:22So probably a three to four
32:24percent extra return or extra
32:26yield is something which
32:28investors should target over
32:29inflation over their, you know,
32:31three to four year horizon.
32:32Okay.
32:33So one is a multi asset, you know,
32:35allocation to a fund is what you
32:36mentioned, what are the other two
32:38top three things in fixed income
32:40that must be a part of
32:42everybody's portfolios?
32:43I think typically any fixed
32:45income investor has three needs.
32:47One is the liquidity which they
32:49require from fixed income.
32:51Second is their core book where
32:52they want to, you know, derive
32:55major part of their earnings.
32:56And the last I would say is a
32:58satellite or the alpha book which
33:00where they want to create some
33:01extra return.
33:02So if an investor has to invest
33:05their, I would say, savings, at
33:07least they should allocate 10 to
33:0820 percent of their book in fixed
33:11income book in the liquid book
33:12which is the liquid or the
33:13overnight funds.
33:14About 60 to 70 percent in their
33:16core book which like I mentioned
33:18could be a short term fund or a
33:19corporate bond fund.
33:20And the last 20 percent is where
33:22an investor can take a duration
33:23risk or a credit risk.
33:25So you can take duration risk through
33:26a gilt fund or a long duration fund
33:28and or you can take a credit risk
33:30through a credit oriented strategy
33:32like a credit risk fund.
33:33So that's something which we would
33:34say is an ideal asset allocation.
33:36Fantastic.
33:36Thank you so much, Mr.
33:37Mittal.
33:38And thank you so much for being a
33:39wonderful audience.
33:39I hope you really got that going
33:41in case you still do not have an
33:43exposure to fixed income by way of
33:46the methods that Mr.
33:47Mittal has highlighted.
33:48We are living in an uncertain
33:49world and this is why you need
33:50certain amount of predictability
33:52also to your long term investment
33:53portfolios.
33:54And I hope this has guided you much
33:55better.
33:56Thank you so much for being with us.
33:57All right.
33:58Thank you so much.
Comments