Ever since you came in on the board 2016 onwards if I am not wrong there have been multiple occasions I have seen that your focus has been on profitability led growth. When you say we need an integrated approach for building the business from here on, how would be the mix of profitability and what are the levers which you have to press to reduce the cyclicality component ?
That is a great question so if you go back a little longer in history, our lending business had contributed less than 10% of PAT. So we have already got that number to around 50-55% of PAT which itself reduces cyclicality massively. Now what happens is because 40-45% of our business is directly or indirectly related to capital markets even in that business we are seeing a shift. We are adding more wealth management products, more fee based, more granular, more annuity, not linked to one large client who pays us a big fee and that is not giving us business in next year.
So our revenues in our investment bank are a lot more granular on the client side as well as the product side. For example if you look at our six month numbers a lot of analysts expected that because the capital markets would be slow the numbers will come down but our debt capital market franchise, our wealth management franchise produced fantastic returns in the last six months both in terms of origination of new product and distribution.
Hence what has happened is that these cyclicality within that business has reduced because of a more larger broader client base and more products. Now on the lending side we are in a very unique position. Our debt to equity is very low so we are earning almost 3.5 to 3.75% ROA and our debt equity is 1.2 times.
You just said in 10 years you see a very good runway for all the businesses? Where are you focussing on and what are those signs because a very few organisations are plugged into the corporate ecosystem as well as the big HNI community where flows are coming? What makes you so confident of that?
The Indian corporates are in the pink of health and the leverage levels are at an all time low right now. If we just look at the business outlook, the kind of talent they have recruited, their understanding of global markets ,the orientation to growing exports right, the orientation to global trade, the orientation on cost, the orientation or integration among their businesses, they are doing a great job. So I think we have these 2000-3000 companies in India which are some of the finest companies in the world.
The universe of your clients in a way?
Yes, we are 500-600 clients but we are targeting around 2000-3000. Second a lot of the companies are going public today and they are largely private equity invested which has put more than a $100 billion into this country in the last six-seven years all of which is going to come for harvesting.
Private equity is looking at 20% growth so a $100 billion compounding at 20% over six to seven years is $200 billion worth of new companies which are not even listed. They all are going to list over the next four to five years. So you are seeing a US like phenomenon of the 70s and 80s and a China like phenomenon of the 90s and the 2000s to happen in India in the 2020s and 2030s. Also, look at the SIP flows it is almost hitting $2 billion a month at times.
India is a shining star right now compared to the gloom and doom across the world. So is it justified that Indian markets are trading at much more premium valuations because of the superior earnings growth Indian corporates are showing up right now?
I will give you a simple example just look at the FMCG and consumer space in India right now. It has been expensive for 14-15 years now but the companies have done very well.
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