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'Confidence suffers if investments are made on prestige, not economics'

Anthony J Stranger-Jones, managing director (investment banking) of Barclay de Zoette Wedd, the investment banking division of Barclays Bank plc, doubts the financial crisis gripping Southeast Asia would not happen in India. In Bombay recently to attend a seminar, he spoke briefly to Syed Firdaus Ashraf. Excerpts:

Malaysian Prime Minister Dr Mahathir Mohammad has accused foreign institutional investors and people like George Soros for the crisis in the East Asian economy. Your comments.

I would not like to comment on Dr Mahathir Mohammad’s view. Funds like those of George Soros's are important for market liquidity around the world. But as an important investor, it is unlikely that he would want the market to go against him. However, if an investor invests in a country and does not get his returns, he will sell.

What went wrong in the Southeast Asian economies?

The problem started with Thailand. The current account deficit started accumulating to the GDP. Then the investors felt that property was being overvalued. And the trend continued in other sectors too. As a result, many companies went through difficulties. So the FIIs thought that the future of Thailand is bleak and they started selling. In Malaysia, the government invested in enormous infrastructure projects which had greater prestige value rather than economic value. For instance, the Malaysian government was focussing on the constructioin of the tallest building in the world. However, this was not the case in Indonesia, where the selling was on smaller scale as the economy is fundamentally strong. And the same is the case in India: the problems that exist in Southeast Asian economies do not exist in India.

Many foreign investors used to complain India lagged behind Southeast Asian economies because it had not opened up as they had. If it had, would not the same crisis have occurred here?

I think India has to balance the benefits with the risks. The benefits is that India has an enormous pool of capital available, so the risks of things going wrong is comparatively less. However, India must not invest money in prestigious projects which do not have sound economic value, otherwise there is the risk of investors losing confidence. Again, when I met ministers in Delhi, I have felt that they are very careful and well qualified, and I don’t think they will allow such a situation to happen here. I hope the politicians don’t allow to happen it here!

The rupee has devalued quite a bit and given India's high level of petroleum import, there is the fear of inflation, which in turn could affect the market. Do you see any such effect?

A lot of people have been saying that the rupee is overvalued, but no one is saying that the rupee is overvalued by 20 per cent or 30 per cent. I think if the rupee fell by another five per cent, there will be ready buyers. As I said, the fundamentals of Indian economy is strong compared to other Southeast Asian countries. And India has not lost its competitiveness. If you look at the Deutsche mark, it has fallen by 30 percent. The yen from its peak 18 months ago at 80 per dollar has fallen to 120 per dollar, a fall of 50 per cent . We are living in a more volatile world, because it is more open and people have more choices. And I think we have to accept that framework.

As an investor, how do you view the setting up of the National Securities Depository Limited last year?

Excellent, though I don’t know much about it yet. I know that local investors used to complain about the stock deliveries. They used to wait for three months, six months, and nine months for their stock. And the stock would never come because the signature was wrong or some other small problem. I am a great believer in the retail investor. And I mourn his departure from the markets. I do not want to judge the picture right now. I think he will be back but he needs a little oxygen to come back to the market if people like me and other financial intermediaries can revive him. And I think NSDL is one method of bringing him back.

Why do you think that many companies are not flocking to the NSDL?

I think once the companies see the benefits, they will come forward. If I was a shareholder in any major company, I would demand that they put their share into the depository.