We must avoid bubbles through policy, regulation: Uday Kotak

New Delhi, Dec 29

Founder & Director of Kotak Mahindra Bank Uday Kotak on Friday said that the situation is not comparable at present and we need to keep Japan of the 1980s at the back of our mind.

“Its Nikkei Index peak was 1989. 34 years later with near zero interest rates, the Nikkei is still below its 1989 peak,” he said.

He said that many investors have joined post Covid and they have mainly seen upside.

“We must avoid bubbles through policy, regulation, education, and supply of quality paper. Companies should raise equity at lower cost of capital for productive use,” he said.

Kotak said India is transforming from a nation of savers to investors.

“The tussle between the saver/ borrower and issuer/ investor model is underway. That saver is now savouring the joys of investing. Mutual fund platforms, cash equities and derivatives markets, insurance funds, global private equity in India, other platforms like AIFs, lower tax regime for equity, have all converted a saver to an investor,” he said.

He said that while we must avoid tax arbitrage in debt, unless debt markets grow it will be a one legged race.

“The current gap on highest marginal tax rate between debt and equity of 39 per cent and 10 per cent is perhaps too wide,” Kotak said.

He said that the double taxation on dividends needs relook and a shareholder is like a partner.

“There is no additional tax when money is moved from the partnership to the partners capital account. Same principle applies to shareholders,” he said.

He said that the low-cost leverage through derivatives can distort financial markets, which needs attention.

“As savers become investors the banking sector faces challenges on its deposits and cost of funds. The large corporate sector has to meaningfully move to capital markets (debt and equity) and away from banks. Banks will become distributors of corporate debt rather than storage houses. They will need to penetrate mid-sized corporates, MSMEs and consumers,” Kotak said.