Turnaround could take 2-3 years

When compared to the US and other countries,we are relatively better off. Were not in recession.

Hemendra Kothari who straddled the investment banking and the securities market like a colossus for 40 years has seen the transformation of the Indian economy from control raj to the current liberalised regime. In an interview with George Mathew, Kothari,who is retiring from DSP Merrill Lynch later this month,spoke about the state of the economy,recovery,capital market,interest rates and foreign inflows. Excerpts:

amp;149;When do you see a turnaround in the economy? Is it linked to the recovery in the US?

When compared to the US and other countries,we are relatively better off. Were not in recession. Theres only a slowdown. We have to thank the Reserve Bank of India and the finance ministry for not hurrying up in liberalising the financial sector. I complement them for this. I think the RBI wanted Indian institutions to become stronger before opening up the segment. We have come a long way since the country started opening up the economy in 1991. India is on a march. I wont be surprised if the turnaround takes two or three years to happen. Of course,its linked to the recovery in the US.

amp;149;The capital market has been struggling for the last one year and investors have made huge losses. When will the situation change for the better?

Investors are getting cautious,and they are getting risk averse,just like lenders. Investors have lost heavily. When the market goes down fast,it reacts also. Thats why we see some recovery taking place. I think things will change. I hope confidence will come back soon. Regarding foreign institutional investment,I feel India is the place to invest. They would come back sooner than later.

amp;149;Corporate investment is also declining sharply. Will this trend continue?

At the moment corporates will try to preserve the capital and try to see the demand situation. On that basis,corporate expansion will take place. Capex slowdown has already taken place.

amp;149;Do you see interest rates going down further?

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I personally believe it should come down. Inflation has already come down. But now government borrowing is overcrowding the market. People are worried about the excess borrowing. Thats the concern why interest rates are not going down. Theres no reason why 10-year gilt yield rates should not be more than 6 per cent. Corporates should be able to borrow at 8 or 9 per cent. It8217;s not happening. According to me,interest rates are on the higher side. Bank deposit rates are lower. When liquidity is there,people will come to corporate bonds as rates are high.

amp;149;Are you satisfied with the level of corporate governance?

Every time something happens,we have to improve and learn lessons on corporate governance. Its a question of vigilance by the company boards and the regulator on a continuous basis. Even after all this,if some fraud takes place,what can somebody do?