Finance industry veteran Uday Kotak said on Tuesday that India needs to reduce its dependence on foreign investment and prioritize building a strong domestic base of long-term venture capital to become truly economically self-sufficient, PTI reported.
Speaking at a Confederation of Indian Industry (CII) event, Kotak noted that a truly self-sufficient nation is one that “doesn’t need to depend on someone 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 meaning. “A real, truly aatmanirbhar, self-sufficient country is one that does not have to depend on someone else’s money or power,” he said.
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Uday Kotak is concerned about India’s over-reliance on foreign investment and urges companies to prioritize building a strong domestic base of long-term venture capital for true economic self-sufficiency.
Kotak suggests that India is funding too early because many companies are too focused on short-term gains such as quarterly earnings and stock prices, rather than building businesses with a longer-term perspective of three to five years.
Uday Kotak advocates strengthening India’s economic balance sheet and profit and loss by increasing domestic production, increasing exports and reducing dependence on imports.
Domestic investors and the growing role of mutual funds are helping India become less reliant on foreign investment. Greater participation of retail investors in mutual funds promotes a stronger domestic equity culture and creates a reliable source of long-term risk capital.
Sunil Bharti Mittal supports PM Modi’s call and believes that the time is right for India to “double down” on investment in the country instead of obsessing over importing things like gold.
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Against a backdrop of global economic uncertainty fueled by conflict in West Asia, Modi appealed to people to avoid destination weddings abroad, limit foreign travel and choose to work from home, a pandemic-era practice, whenever possible.
Kotak, who is the founder of private lender Kotak Mahindra Bank, said the global environment is increasingly fragmented, with countries prioritizing their own strategic interests, making it imperative for India to strengthen its domestic economic fundamentals.
Describing it as a “provocative” statement for a financial professional, Kotak said, “India got financialized too soon.”
He said many companies were overly 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 encourage companies not to focus too much on short-term share prices … but to think about building the company three to five years out,” he said.
Kotak said India had relied heavily on foreign portfolio investment (FPI) for many years and it was only after the pandemic that domestic investors started playing a bigger role in the capital markets.
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He urged companies to reinvest profits rather than just manage large treasury portfolios.
“Corporate India has a phenomenal tax rate. What have you done with it? Do we reinvest or manage corporate coffers?” he asked.
Kotak said that governments are generally poor in allocating capital and suggested that policy support should focus on encouraging new investment through additional investment incentives, rather than relying solely on existing tax incentives.
He also stressed the need for India to strengthen its economic “balance sheet and profit and loss” by boosting domestic production, increasing exports and reducing dependence on imports.
“We need our balance sheet and P&L to be able to produce, otherwise there will be a time when it will be difficult to buy,” he said.
While Uday Kotak acknowledged that India’s overall economic position has strengthened significantly with a reduced current account deficit and healthier foreign exchange reserves, he warned that risks still remain, especially if there is a sharp rise in oil prices or a decline in foreign investment. He also urged Indian businesses to move beyond their comfort zones and focus on contributing to the growth of the nation instead of depending mainly on government assistance.
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He also advocated for the strengthening of domestic private equity, venture capital and the alternative asset ecosystem, saying that these institutions are essential for financing entrepreneurship and long-term economic growth.
He said pension funds and insurance companies that accumulate large stocks of household savings should be gradually allowed to allocate more money to private markets in a regulated manner with adequate safeguards, PTI reported.
Uday Kotak emphasized that the growing role of mutual funds is helping India become less reliant on foreign investment.
I would strongly urge companies not to focus too much on the short-term share price… but to think about building the company three to five years out.
He noted that greater participation of retail investors in mutual funds has fostered a stronger domestic equity culture and created a more reliable source of long-term venture capital, PTI reported.
Key things
- India needs to strengthen its domestic economic fundamentals to reduce dependence on foreign investment.
- Companies should focus on long-term growth and reinvest profits instead of prioritizing short-term stock prices.
- Building a robust domestic private equity and venture capital ecosystem is critical to business financing and long-term economic growth.
