Amid widespread concerns over high stock valuations, including from the regulators, financial services industry veteran Uday Kotak on Wednesday said Indian markets are not in a bubble.
There may be some “early froth”, and it may be a “little bubbly” but the markets are not out of control, Kotak said, speaking in the presence of top officials from Sebi in a conference organised by the capital markets watchdog.
The statement from Kotak, the founder and non-executive director of private sector lender Kotak Mahindra Bank, comes two days after Sebi chairperson Madhabi Puri Buch had said that there are pockets of froth in the small and mid-cap stocks and the regulator is looking into the same to come out with a possible consultation paper.
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“It may not be appropriate to allow the bubble to keep building, because’ when it bursts, they impact the investors adversely. That is not a good thing,” Buch had said.
Reacting to it, Kotak quoted economist John Meynard Keynes who spoke about speculation to be not a bad activity per se and also mentioned about the bubble in Japanese stocks between 1980 and 1989, saying the benchmark Nikkei has been able to regain its peak, only 35 years later after the bubble burst.
“I believe at this stage, we are nowhere near that risk and there are enough checks and balances in our system today to compare ourselves in serious bubble territory,” Kotak said.
There may be “early froth” in the market and it may be a “little bubbly”, Kotak said, pointing to Buch who was seated close by, but added that things are not out of control.
“As long as we keep watch and manage it well, we can create sustained capital formation going forward,” he said.
Meanwhile, Kotak also pitched for greater quality on the taxation front between equity and debt, as asset classes to give more clarity for investors and incentivise the right set as per priorities.
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“In the context of the equity culture, I do believe that there has to be some streamlining of taxation across different classes, including double taxation on dividends,” he said, pointing out that the highest marginal tax on debt is 39 per cent while the same on dividends effectively is 57 per cent.
He also pitched for the country to claim the space of making the rupee as the preferred alternative to the US Dollar to settle global trade, saying the world cannot go to China for this and we need to have a 10-year plan on the same.
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