India needs to cut reliance on foreign funds: Uday Kotak says ‘strongly urge companies to not be…’

Finance industry veteran Uday Kotak said on Tuesday that India must reduce its reliance on foreign investment and prioritise building a robust domestic base of long-term risk capital to become truly economically self-sufficient, as reported by PTI.

Addressing a Confederation of Indian Industry (CII) event, Kotak remarked that a truly self-reliant nation is one that “does not need to depend on somebody else's money or power.”

Referring to Prime Minister Narendra Modi's call to celebrate weddings in India rather than overseas, Kotak said the message had a deeper significance. "A true, truly Aatmanirbhar, self-reliant country is the one which does not need to depend on somebody else's money or power," he said.

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•5 QUESTIONS

1

What is Uday Kotak's main concern regarding India's economic self-reliance?⌵

Uday Kotak is concerned that India relies too heavily on foreign investment and urges companies to prioritize building a robust domestic base of long-term risk capital for true economic self-sufficiency.

2

Why does Uday Kotak believe India has "financialised too early"?⌵

Kotak suggests India has financialised too early because many companies are excessively focused on short-term gains like quarterly earnings and stock prices, rather than building businesses with a longer-term perspective of three to five years.

3

How can India strengthen its economic balance sheet and P&L, according to Uday Kotak?⌵

Uday Kotak advocates for strengthening India's economic balance sheet and P&L by boosting domestic production, increasing exports, and reducing dependence on imports.

4

What role do domestic investors and mutual funds play in reducing India's reliance on foreign funds?⌵

Domestic investors and the increasing role of mutual funds are helping India rely less on foreign investments. Greater participation by retail investors in mutual funds fosters a stronger domestic equity culture and creates a dependable source of long-term risk capital.

5

What is Sunil Bharti Mittal's stance on investing in India amidst global economic uncertainties?⌵

Sunil Bharti Mittal supports Prime Minister Modi's appeal and believes it's the right time for India to "double down" on investing within the country, rather than being obsessed with importing items like gold.

Against the backdrop of global economic uncertainty triggered by the West Asia conflict, Modi had appealed to people to avoid destination weddings abroad, limit foreign travel and opt for work-from-home, a pandemic-era practice, wherever possible.

Kotak, who is the founder of private sector lender Kotak Mahindra Bank, said the global environment is becoming increasingly fragmented, with countries prioritising their own strategic interests, making it imperative for India to strengthen its domestic economic foundations.

Calling it a "provocative" statement for a finance professional, Kotak said, “India has financialised too early.”

He said many companies have become excessively focused on quarterly earnings, stock prices, and employee stock option gains, rather than building businesses with a three- to five-year perspective.

"I would strongly urge companies to not be excessively focused on the short-term stock price... but think about building a company three to five years," he said.

Kotak said India had relied heavily on foreign portfolio investment (FPIs) for many years and only after the pandemic did domestic investors begin to play a larger role in capital markets.

He urged companies to reinvest profits rather than simply managing large treasury portfolios.

"Corporate India has got a phenomenal tax rate. What have you done with it? Are we reinvesting or running corporate treasuries?" he asked.

Kotak said governments are generally poor allocators of capital and suggested that policy support should focus on encouraging fresh investments through additional investment allowances rather than relying solely on existing tax incentives.

He also stressed the need for India to strengthen its economic "balance sheet and P&L" by boosting domestic production, increasing exports and reducing import dependence.

"We need our balance sheet and P&L to be able to produce, or there will come a time when we will find it difficult to buy," he said.

While acknowledging that India’s overall economic position has strengthened considerably, with a reduced current account deficit and healthier foreign exchange reserves, Uday Kotak cautioned that risks still persist, particularly if crude oil prices surge or foreign investments decline. He also called on Indian businesses to step beyond their comfort zones and concentrate on contributing to the nation’s growth instead of depending mainly on government assistance.

He also advocated strengthening the country's domestic private equity, venture capital and alternative asset ecosystem, saying these institutions are essential for funding entrepreneurship and long-term economic growth.

He said pension funds and insurance companies, which are accumulating large pools of household savings, should gradually be allowed to allocate more money to private markets in a regulated manner with adequate safeguards, PTI reported.

Uday Kotak emphasised that the increasing role of mutual funds is helping India rely less on foreign investments.

I would strongly urge companies to not be excessively focused on the short-term stock price... but think about building a company three to five years.

He noted that greater participation by retail investors in mutual funds has encouraged a stronger domestic equity culture and created a more dependable source of long-term risk capital, PTI reported.

(With inputs from PTI)