[0:10]Welcome to the much awaited NDTV Profit Town Hall. And today, the speaker we have in our studios is none other than Shankar Sharma, Ace Investor, founder of G Quant FinX Ray. But I would say also one of the most controversial market speakers, at least on social media. No, I don't think so. No? Shankar, everything you put out then has a series of people who are coming aboard to say that whatever you said was wrong. Of course. You think about that when you post that how many people will I upset with this post? Of course. It's a considered thing. 100%. Social media is supposed to be like that, right? If you're in the middle of the line then there is no traction. And if you're too goody goody, also there is no traction. If you're a little borderline bad boy, it's good. So of all the things and of all the years that I have known you, I don't think anyone can accuse you of being goody goody. Not even my mother. Okay. That's good to know. So here's what we're going to do in this show. Here's the format. We'll have a couple of questions with Shankar, and then of course our brilliant team, all our anchors, researchers, and the NDTV Profit newsroom is here. They're going to be asking questions as well. But you have an opportunity to write into us all of the handles are on your screen where we will pose your questions to the one and only Shankar Sharma. I'm going to start with I think one of the controversial or more controversial things that you put out recently. A thought that Indian equity markets will actually have to take the brunt, let markets crack for some of the pain that we're seeing in our ecosystem to ease. What were you trying to say? Just recap that for us. So it's a pretty straightforward theory that look any country which is going through some kind of crisis and let's accept it that we have some degree of crisis. It's not 1991 but it is pretty bad after 2013. In that you have two markets functioning, or let's say three markets functioning. One is the bond market, your local bond market, second is your currency market, third is your stock market. Bond market the RBI can manage because it can do the OMOs and keep the rates yields down, which is what has happened. I don't know how long that can continue, but it has happened. Then you have the currency market, which is a more global market, and a stock market, which is also a global market. So the the market that you have controlled is the least globalized because you can control it, and on the other hand, currency is something you're trying to control using reserves in India, which as I wrote in my article, in Mint Paper, was that these are not earned reserves, these are rented reserves. Barring the invisibles component, which is your remittances and your software exports remittances, other than that it's all rented. Rented money you cannot use to defend your currency. It's like a promoter raises money, and then he goes out and starts buying his his own stock with that to prop up his stock. It's not possible. So the only thing that you can let go of is that the stock market. Because the stock market here is giving the FIIs a very easy exit liquidity. And this I wrote a year and a half back and now you can see exactly the effect of that play out that you're hemorrhaging half a billion dollars or so a day. These numbers are absolutely staggering. You cannot continue this path. So India, for example, going to raise, I don't know, 30, 40 billion dollars through the FCNR B, that's what is talked about. Yeah. That's two months of outflows.
[3:46]FIIs still have 800 billion dollars to go. So you're raising a liability to fund exits. Very different from 2013 when if you see the data we actually had a net FII inflow for the FY14. There was no bleeding and all that. So the buffer that was the cash that was raised by India was a buffer. It wasn't to fund exits. This time you're raising cash to basically fund exits, it's ridiculous. So my view is that you have to stop the stock market from providing these easy exit liquidity to the FII. In doing so, of course, you'll have to raise rates on mutual funds and do whatever, I mean, I'm not the policy maker. Let the market fall. In my 35 years of this business, I know FIIs walk in when there is a big market crash. Because everything then changes, so that AI trade will then okay, AI is risky, India has fallen 30, 40%, let's go back in. That's the way you will solve this problem. Otherwise raising liabilities to fund exits is absolutely not a winning game. No, but how do you let the market crash? Then it comes down to the domestic Indian investor, who has stood up in the last five odd years. I don't like this term stood up. What do you mean stood up? Market may you're not going to get paid to be brave and all that, ya. But they've they've come to the people this is not this is not the army or the soldiers fighting on the front. Agreed. I'm not saying yeah. The army foreign and we are, you know, fighting them. Okay, so let's remove the morality from it, let's remove all of that. But the fact is that they've come here for a reason, right? People are investing for a reason, they saw their FD returns, they want to make more money in their lives, and they're coming here because they've got returns. They want to be there when this dip comes. That's why you have people putting money in SIPs. Why should they walk away right now? I'm saying they don't have to walk away, they need to be slowed down. Now either it slows down on its own, so you saw that SIP closures exceeded the new openings I think in April. I don't know what the May data will will show. If it happens organically, well and good, but probably it won't happen so easily. In the interim, you would have bled another 30, 30, 50 billion dollars of hard currency. India cannot fight a two-front war. You can't fight currency, in fact, three front, bond market, currency and of course the stock market. If there is one lamb you have to sacrifice, sacrifice the equity markets. They always come back, always, there is no history of civilized markets where markets crash and they don't come back. Saal, do saal ke baad mein, everything comes back. So you also give the locals an a chance to buy buy cheap. What's wrong with that? Okay, and what would be the mechanism of sacrificing this lamb of equity markets? Simple, taxation is the best mechanism. You think tax more? Entire market is saying tax less. Look in the 90s, in the 90s when India opened up to FIIs, FII taxation was zero. It was on paper something but through Mauritius they could take advantage of the DTA and come with zero taxes. Domestic investors were taxed 20%. So the differential was a 20% differential. I am saying what is we needed dollars then, we need dollars now. Just do it. I know it will not happen because all of you guys will will start demonstrating in front of India Gate and all that, which is what people do. Market participants don't demonstrate anywhere. They demonstrate how they do it only, I mean people do it for stray dogs, I think. Twitter.
[7:03]So I think that's the only way you need to disincentivize this engine. It is a runaway train, and it is causing a macro problem. If there was no problem, I wouldn't be saying that. But I am saying you have 550 or 600 billion dollars of reserves. They are rented reserves. If they keep flying out the door at a half a billion, a billion a day, you're not going to be left with a lot of it by the end of the year. Okay. Queries flying in and we'll get to them. But first, we're going to go in-house and of course, our entire team here. Hiral, we'll start with you. Hi Shankar. This is Hiral here. You know, your point taken when you're talking about what needs to be done. You have no option. You have to take my point. No, I want to counter this. You're saying at this point in time SIPs need to slow down. I was just picking up a little bit of data where your fresh SIP registrations have hit a three-year low. Your SIP stoppage ratio has risen as well because it's gone up to what, 101.1 in April, versus what, 52, 75, 94 between 24 to 26. Does this mean that this is the starting point and from here slowly, steadily, staggered way you will see FIIs coming back? Because this is exactly what you're alluding to, that SIPs somewhere have to come to a standstill. Look, people are not putting fresh money and two, the other point is you've called India a haunted haveli right now. So what is it that FIIs are seeing which domestic investors are not able to see, or are they also starting to see that? So that's the point I was chatting with Tamanna before the the program started that last 24 months, in my personal investing journey on the global macro front has been a smoothest ride I've had in a very long time. The entire world has been having a party. Entire world. India, unfortunately, along with maybe Philippines and Indonesia, are the bottom three markets out of 40 markets that I invest in. Bottom three. India has never been in that position to the best of my memory. It's been middling to the top end of the markets. First time, and this is therefore the problem the haunted haveli thing is because you're not part of a large group of emerging markets that are underperforming. You're just in a pack of one. That's where the problem is. If you were a larger pack, no problem. Now question is why? The question is obviously, AI is one angle, domestic growth is another angle, currency. All of that put together tells me that you have a problem, recognize it, but the solution is not going to be raising more FCNR or doing a resurgence India bond kind of thing because today's environment is not 2013 where rates were too low, the spreads were very wide as a nonresident. I could get a lot of leverage and lock in 4% and you were leveraged five times, six times, you're making 20%. Today you will not make that. So what is the solution? The solution is either organically mutual fund inflows stop or come down, or you make them come down. Now organically it'll drift down, I think it will over 12 months, but by that time you've lost 50, 100 billion dollars. As I said, still have 800 odd billion dollars to go. From FIIs, you don't have that much cash to just keep putting out and giving foreigners easy exits. No, but okay, so as as an FII, as an an an NRI, do you how attractive or what is your assessment of all the moves that have taken place in the last week or so what the Reserve Bank of India has done, the removing of taxes on investments into government securities. How do you assess those? Okay, so let's take that one first. In my view, that is a good move, but the point is Indian bond deals are artificially low. It was 7% or so, 6 and a half, 7% when the currency was 84, 85, it's still the same. When your currency falls, your bond your bond deals have to go up to compensate. Here that compensatory mechanism has not happened because the RBI is obviously keeping the the yields low. Therefore, it's not attractive enough for 7% rupee yields for any FII when your bond deals in America, 4.5 or 5 depending on what what maturity you take. It's not a good enough reason for people to come into the bond markets. One very important thing, the total bond market investments in India from the time it started is only about 75 billion dollars, total. And that out of that one year, I forget which year was 28 billion dollars. That's your total data of flows into debt markets, that was when we were not in a fragile one kind of situation. So put it in context here, I mean, the market is telling you 7% yield is not attractive for a dollar investor into a domestic debt markets. And from the FCNR part if I don't know what banks will offer. Maybe they'll offer 6% or so. But the funding cost is going to land at my doorstep as a non-resident, it may be 5 and a half. The spread is half percent, maybe 1%. Is that good enough to bring in 50 billion? I would be very, very surprised if it does. Okay. So that is not necessarily the most attractive thing. Let's get more questions in. Alex. Hi Shankar. Alex here. And let me let me add to that. You put a duty on gold, what, 15%? Correct? So what's a holy cow thing about equities? I was actually going to ask about gold. So I know what you're going to ask. You can actually read my mind. Exactly. But so you've spoken about the equity market but why not curb gold, right? They've done it. They've done it but why not stop completely, because it's not a productive asset. It's productive for the people buying the gold, it may not be productive for the government or for the economy in the sense you think it is. But for people buying gold in India that's the only pressure cooker steam let off that exists to protect your capital from a dollar appreciation against the rupee. There is no other tool available. Otherwise, India's financial markets are all about financial repression. Correct? This was the only route, now you have taxed it. Now you want to stop it. Counter to your mutual fund point, hybrid as a category is now a pretty large category, right? You talk about balanced advantage funds, multi asset funds etc etc. These invest in government bonds as well, big buyers of government bonds. Sure. So if you stop SIPs, and there are quite a few SIPs that are now going into these hybrid funds, you stop SIPs or you curtail fresh flows into mutual funds. You don't have a buyer for government securities in India, isn't that counterproductive? I don't know what the data is about how much goes into Gsecs from the mutual fund part, but I think we still have a large body of potential or real investors from the mutual from the from the insurance companies, pension funds. So there is still a large enough body and then you can channel them through debt funds. So hybrid is in balance is a different animal, but nothing stops you from investing in a. Do that, fix that, increase equity tax, reduce the bond bond tax as you've done for FIIs. You know, the the point about and you said that it's there's no army coming in and you shouldn't look at it that way that domestic invest Indian investors should come and fight off the foreigners, etc.
