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“Many investors have joined post Covid. They have mainly seen upside. While the situation is not comparable at present, we need to keep Japan of the 80s at the back of our mind. Its Nikkei Index peak was in 1989. 34 years later with near zero interest rates, the Nikkei is still below its 1989 peak,” Kotak wrote on X.
He said we must avoid bubbles through policy, regulation, education, and supply of quality paper. Companies should raise equity at a lower cost of capital for productive use, the billionaire banker said.
As India is transforming from a nation of savers to investors, he said the tussle between the saver/borrower and issuer/investor model is underway.
To create a sustained growth story from hereon, he said unless we avoid tax arbitrage in debt and unless debt markets grow it will be a one-legged race. “The current gap on the highest marginal tax rate between debt and equity of 39% and 10% is perhaps too wide,” he pointed out, while also recommending that the government must relook at double taxation on dividends.
“A shareholder is like a partner. There is no additional tax when money is moved from the partnership to the partner’s capital account. The same principle applies to shareholders,” Kotak wrote in his argument.
Comments from Kotak Mahindra Bank’s founder come ahead of the preparations for the Interim Budget scheduled to be presented by Finance Minister Nirmala Sitharaman on February 1.The sharp surge in derivative volumes also seems to have caught Kotak’s attention as he warned that low-cost leverage through derivatives can distort financial markets.
“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 suggested.
His other recommendations include avoiding a retrospective tax and regulatory regime, acquisition financing, and streamlining the IBC/ NCLT process.
“As India aspires, the financial sector will be the key engine for delivery. The impact of technology is a separate subject of discussion for a future date. The saver/ borrower and the issuer/ investor models will coexist. It is time for a holistic financial sector view,” he said.
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(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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