The Chairman and CEO of Edelweiss Financial Services Rashesh Shah believes that India would witness overall inflows of $40-45 billion or ₹2-2.5 lakh crore into equity in a year’s time. He lay emphasis on the role of the Government in creating innovative financial instruments that can help channelise a greater portion of household savings into financial instruments. Excerpts from an interview to Business Line :

What is your view on the resurgence in mid- and small-cap indices?

Investors have always been under-invested in mid-caps but they are catching up now as they are feeling that economic growth is coming back, Indian economy will improve and mid-caps will benefit out of that. Valuation difference between large- and mid-caps has been very large over the last few years.

What can be expected from FIIs and DIIs in the near-term?

We are expecting to get $40-45 billion in a year. I think through the year, FIIs will put in $20-25 billion, LIC will put in $8-10 billion and I see another $10 billion being put in by other insurance companies and mutual funds.

Isn’t there a risk of this money being hot money?

There is always a little risk of that but a lot of the money coming into India is now coming on a long-term basis because our markets are not very liquid and impact costs are very high, so it is not easy for money to go in and out of the country very easily.

Where do you see the equity markets headed in the near term? Do you think there has been a lot of over-expectation from the new Government which has not been priced in?

Some expectation is priced in but I think there is still a lot of room to grow, but the Government has to follow through. Budget and other announcements on FDI and economic policies will be important factors. But I think it is a structural change in India. In six months people have changed the way they look at India. That is not momentary but structural and is here to stay.

In another six to eight months we have to see earnings growth and economic growth and if those don’t come through, then it will be a question mark. But all of us are confident that those should come in.

Would it be right to say we are at the beginning of a bull run?

I would say that optimism and growth are coming back and investment will come back but the word I would underline is follow through with corporate earnings and right governance; only then will it sustain.

Any wishlist for the upcoming Budget?

Make it easier to do business, increase FDI limit as it would be good for companies to raise money, reduce STT and overall make it easier for people to invest and trade in India.

Financial savings as a percentage of household savings should be at 54 per cent, but in the last five years this number has dwindled to 36 per cent. This implies only one-third of the household savings have been coming into financial instruments. Existing KYC norms, constant change in investment rules and high inflation have made financial savings unviable. Once the real interest rate turns positive coupled with Government initiative to come out with innovative financial products and new KYC norms we expect financial savings to be back on track.

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