Chandresh Nigam: Country has wealth creation potential, but lack of free-float stocks a major bottleneck

For market participation, the primary requirement is to have a large number of well-performing companies. We have 250-300 good quality businesses that will create wealth over the next 5-10 years but I think it is still small. This problem of small-sized high-quality market is prevalent across the world but is more pronounced in India because in most of the high-quality companies, 50-70 per cent is owned by the promoter. So, what is left in terms of free-float is virtually nothing. As of now while 52-53 per cent of the market is owned by promoters, 22-23 per cent by FIIs and about 9-10 per cent by local institutions. That makes it almost 85 per cent. The rest is free-float. So there is definitely a constraint in that aspect.

What is the solution?

The issue of free-float being low in India is a problem, but is regulatory intervention required? I don’t know if that’s the right thing. If you want to buy good companies, you should buy them now because when you see large capital flows from FIIs, they will all be rushing to buy them. If you look at high-quality companies and even the MNCs, the promoters are buying or increasing stakes or delisting their Indian subsidiaries.

We need the IPO market and new companies should come up. While that is essential, the reverse is actually happening as the promoters are buying more. I think the constraint will remain.

Are you satisfied with the way retail investor participation has grown over the last year?

This country has 23 crore households and about 8-10 crore have financial savings and are probably can invest in MFs. As an industry we have only 75 lakh to 90 lakh households and so there is long way to go in terms of penetration. Of Rs 32,000 crore that have come in equity schemes in last three months, around 20,000-25,000 crore came from retail. But we should not be satisfied as the potential is huge. While it is easy to sell the last one-year story, you need to sell the product that investors can feel confident about over the next 3-5 years and that’s the challenge.

What is your view on fixed income?

The long-term downtrend in interest is here and we should see 25-50 basis point cut in rates over the next 6-8 months. We think that 10-year G-Secs which is around 7.85 per cent could come in range of 7-7.25 per cent.

How do you read the corporate performance?

Economy has been slowing down since 2011 and nothing meaningfully has changed on the ground yet. Infact things would have become worse because both business confidence and consumer demand has been down. In that sense corporate performance has been decent. The topline is not coming but profits are there and that is going to be the story for the rest of this year. But next two to three years there will be higher corporate profit growth.