Indian investors find opportunity in adversity

Published: 25 August 2008

Tarun Kataria explains how HSBC's global reach helps counter the credit crunch

Faced with rising inflation at home and a faltering global economy, India may be hard pressed to maintain the high octane GDP growth rates it attained in past years.

Signs of this predicament have been evident in Indian markets. A continuous decline in foreign institutional investments (FII) has brought the 12-week moving average down to USD300 million as of May 2008 from USD700 million in December 2007. Though foreign direct investment increased in the first quarter of 2008, the increase failed to match the softening of foreign inward and portfolio investments.

Some observers have expressed reservations as to whether India can continue to thrive in the face of domestic challenges and a global credit crunch, but most analysts remain optimistic. Tarun Kataria, Managing Director and Head of HSBC Global Banking and Markets in India, says that even in the face of a global economic slowdown, India remains a compelling investment destination for both FII and FDI.

How challenging has the sub-prime fallout made your role as Head of HSBC Global Banking and Markets in India?

The role is challenging on many counts. Over the course of the past seventeen months one has had to manage a business in an environment that has gone from euphoric to cautious. This gets complicated in terms of managing people, client expectations and balance sheet usage. It also creates challenges in terms of managing future growth both for us and our clients. That said, managing a business under sanguine conditions is much less fun.

As India confronts the pressures of inflation and commodity costs, what effect do you think this will have on the products and services of Global Banking and Markets?

Broadly speaking, 'products and services' for us is capital raising, M&A advisory, risk management and transaction banking. All of these universal banking services become more important in a time of market dislocation. Ensuring the judicious use of our balance sheet, putting private equity and principal capital to work at more attractive valuations and assisting our clients to manage their own cash, become important in a time of high interest rates and a less robust economic environment. The good news is that Indian clients are conservative in their growth strategies and in the leverage they use and are less exposed to the impact of the credit crunch. This positions them well, as it does HSBC as their key partner bank, to take advantage of dislocated markets.

We have maintained from the start that the SIV/sub-prime fallout will provide an opportunity for Indian corporates to acquire global assets. Valuations have come down but more importantly perhaps the competitive bid for the same asset from private equity buyers has markedly reduced. This, coupled with under-leveraged balance sheets and financing still available from local banks, including HSBC, provides an interesting opportunity for Indian corporates.

How would you assess HSBC India's performance against its corporate competitors? How do you aim to ensure HSBC India becomes the country's local bank?

HSBC India has been rated the number one foreign bank in India and the number two bank overall. This is no small achievement. In most Global Banking and Markets verticals India compares very favourably and indeed is better positioned than the competition. In other verticals we have made material progress these past few months. Our Equity Capital Markets and Advisory practices are materially better positioned today than they were a year ago.

Our market leadership, long-standing presence and outstanding staff coupled with strong global capabilities and distribution means we are already considered India’s local bank. Clearly, from a position of leadership there is only one way to go. If you thought it’s down, you are incorrect. It’s now about widening the gap between HSBC India and the competition.

Economists predict a continuous slowdown in India's growth this year. How would this affect the growth of HSBC Global Banking and Markets in India?

Over the past couple of years our numbers have increased exponentially and we are now the number two Global Banking and Markets site in Asia-Pacific. We expect to maintain our high PBT growth rate despite a modest GDP slowdown later this year and into 2009. Most economies would be delighted with 7.0-7.5 per cent GDP growth. As a business, we have remained cautious for much of the past six months and as a result are better positioned than our foreign bank competitors in India.

How does Global Banking and Markets connect its clients to emerging economies outside India? Is there a common approach shared with other parts of HSBC Group?

We look to connect and join up our strengths as a group across the emerging markets in three broad ways. One is to ensure that we remain front and centre in the trade and FX flows between these geographies. Further, our ability to provide clients with acquisition and joint venture opportunities across these geographies has been a key differentiator. In addition, our ability to finance clients across the world in conjunction with colleagues across the world provides us a global approach to our Indian clients. Away from Global Banking and Markets, we have a Non-Resident Indian and Indian Diaspora strategy both in Personal Financial Services and Group Private Banking which has done well and continues to go from strength to strength.