The Global equity markets have been quite volatile in anticipation of the interest rate guidance by Federal Reserve in USA leading to capital outflows of around USD 1 trillion from emerging markets in last 12 months out of which large part have fled in last 6 months. With US FED prepare for the monetary policy normalization, which would lead to increase in interest rate up to 2% eventually, equity markets are further expected to remain volatile with downward pressure.

Amid volatile market, Indian capital markets has seen reversal in capital flow with outflows in the range of ~ USD 2.5 bn during the current financial year (till September 21, 2015) against Inflow of ~USD 42 bn during the previous financial year i.e. 2014-15. China too has been affected as capital outflow was ~ USD 9 bn during January-March 2015 against steady inflow of roughly USD 20 bn each in last four quarters. While Brazil and Russia have been the worst lot with outflow in the range of USD 48 bn and USD 52 bn respectively in the first half of 2015. Needless to say that these capital out flow have led to depreciation of the currency of these countries.

However, there is silver lining for Indian capital markets as it has outperformed its peers on the back of stable growth prospects, lower inflation projections and room for monetary easing. It is envisaged that foreign investors would increase its exposure in Indian equity markets going ahead. It is also expected that global growth in 2015 would be better than 2014 as improvement in advanced economies would compensate fall in growth in emerging economies.

The above Macro-economic environment coupled with aggressive market practices by fund managers in USA and Europe have led to tightening of compliance framework by Financial Market Regulators in these territories to mitigate the financial stability risks. IFIN needs to keep an eye on changing regulations and assess its impact on International presence in the above locations. At the same time it is felt that that these measures would boost investors’ confidence in the long run.

At IFIN Debt has been predominantly the bedrock of all the international transactions; the way forward for the international subsidiaries, is to look at the equity opportunities also and explore the markets, especially UK, to an extent in Hong Kong.

As the Growth Story transcends from the healthier portfolio of Debt and equity thus it would be a competitive advantage to enhance the equity advisory capabilities alongside debt pursued currently. The enhanced presence in equity offering would make us better placed to ride the next wave of in the international markets and harness expertise in infrastructure segment.

However, despite the record inflows last year, Government/State/Public Sector Securities continue to dominate the Indian bond markets and the creation of a vibrant bond market for private sector companies is yet to catch up to its full potential

As International Business environment is highly regulated with onerous compliance framework mainly in cross border transactions, we would need to strengthen its internal compliance framework also to support the proposed expansion into equity advisory segment in line with the current practices.

Deepak Pareek - CFO, IL&FS Financial Services


 


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