Time for aggressive privatisation of PSU banks: Nirmal Jain, IIFL

The best way to solve the problems of public sector banks is to privatise them aggressively, said Nirmal Jain, chairman of IIFL Group. The government should also abolish securities transaction tax (STT) to make the market more liquid and to ensure volume surge in the local bourses, he told Rajesh Mascarenhas on the eve of IIFL Enterprising India Global Investors’ Conference ‘Rise of The Millennials’ beginning Wednesday.

Edited excerpts:

What are your expectations for the markets in 2018?
Right now, we are crowded with negative news of scams and issues of public sector banks. Fact is that the economy and financial world are much bigger than scams. We have to learn lessons from past mistakes and try to fix loopholes. Many of these problems are also due to the legacy left by the previous government. We have a much larger economy and people should not lose focus of the economy. NCLT and IBC have done a wonderful job. Today, there is fear among promoters, bankers and businessmen. Now, the culture has changed. Earlier, they used to take it for granted. After 5-10 years, our systems will look better for sure. Today, government is talking about huge infra spending. Other than budget, money will come only from markets. Hence, you need to make your domestic market more vibrant so that money is not parked in unproductive assets like gold and real estate. If you spend more money in rural and infrastructure, it will augur well for the economy.

Do you think higher MSP is required?
If you see the Gujarat election results, farmers are unhappy with the Modi government. Farmers’ problems are different and it has nothing to do with GST or demonetisation. MSP was not increased for past few years and procurement has been low. Farmers were not able to get good money for their hard work. In India, farmers are a large community and they are relatively poor. Until there are some structural changes where farmers’ income are increased over a long period, their problems will not be sorted out. The solution to farmers’ problem is urbanisation. The number of people in farms must have gone down by 10% in the past 50 years, but the percentage contribution of agriculture to Indian GDP has gone down from 60% to 16%. Obviously, farmers became poorer.

Is the worst over for corporate earnings?
Corporate earnings have started looking up in the December quarter. More sectors will join the earnings recovery now. If demand growth improves because of rural and infra spending, we will see further acceleration in earnings growth. Irrespective of political uncertainly, market will move in tandem with earnings. Forget about overall return, there are several stocks to give fantastic returns when the economy recovers. From an investor’s perspective, bank FDs will not protect you much. As far as equity market is concerned, no one can predict the market in the next 3 or 6 months, but one can expect minimum 15% compounded return. Hence, retail investors should invest their money in stock market through SIP.

Do you think, markets are worried about the outcome of 2019 elections?
Yes, some sections of the market are worried about the 2019 elections. But still there is overwhelming belief that Modi will get another term with lesser seats. People are cautious about Rajasthan, Karnataka and Madhya Pradesh elections after the Gujarat results.

Do you think the time has come to allow entry of some large corporates into the banking system?
In public sector banks, government took a long time to come out with a plan. But, still, a holistic solution is not visible. The best thing the government can do to solve the public sector banking problems is by privatising them aggressively. They should allow foreign shareholders to take majority stake with an undertaking to revive them. Now it is easier for the government to convince unions. Private sector banks are far more careful in terms of governance and controls as they put a lot of capital. Government should appoint some good global investment bankers to find suitors. Some banks could be merged with private sectors banks. There is value in public banks, but problem is bad assets. The value is in brand, CASA, customer base, branches, franchise and goodwill. Government can do a good job by encashing these values and get rid of bad assets.

Do you think long term capital gain tax (LTCG), discontinuation of Nifty on SGX and MSCI warning dented India’s image globally?
If someone is making money, he has to pay tax. The problem is not LTCG, but securities transaction tax (STT) which was introduced in lieu of LTCG. Now they should remove it. STT comes at a huge cost of liquidity and market making. If you want to make the stock market vibrant, then impact cost should be minimum. Because of STT, Singapore stock exchange thrived. If you removed STT, why would someone trade in SGX. However, there is a free global world and you can’t create artificial barrier for too long. Remove STT, make the market more liquid so that volumes surge in our bourses. At the same time, I think MSCI warning on SGX Nifty ban is not fair. If they cut weight, the incremental money may be affected temporarily. But India is a much bigger country. In the shortterm, it may impact, but in the long term there are many India dedicated funds which will come as India will give them good return.