India remains strategic market for UBS’ equities, i-banking business: Aashish Kamat

India still faces the threat of a ratings downgrade, and has a long way to go before its image improves as an investment destination, as fundamental challenges such as weak infrastructure, wide fiscal and current account deficits remain, says the country chief executive of Swiss bank UBS AG. Aashish Kamat tells ET that intense competition and falling returns forced the bank to surrender its banking licence, but it still continues to be committed to its equity research and investment banking business in the country. Excerpts:


What are your views on the state of India’s economy?

The growth slowdown in the Indian economy has to do with the supply side. Stalled infrastructure projects, roads, ports, power, etc. Where the economy needs to focus on is really on the manufacturing side. The 5% growth in GDP is fine if you had half the population of India. But if we are going to employ this demographic dividend that we enjoy, you have got to be at 7-8% at least.

Does India still face that risk of a ratings downgrade?

The government is at least talking about taking appropriate policy measures to stoke growth in the country. Like I mentioned before, what everyone will want to see is execution. If GDP growth continues to lag, ie is less than 5%, the rupee continues to depreciate and growth is hindered by continuing high inflation and rates, then yes, the rating will come under pressure.

The government did take some measures such as higher FDI but one hasn’t seen many inflows, especially in sectors such as retail. Where do you think the problem lies?

You are still procrastinating on the Jet-Etihad deal. Once the deal is announced, and companies have agreed, then the deal should have been done. They have increased FDI in telecom. However, very few companies will make use of that. You don’t want to go in and then have the next parliament come in and change what the prior Parliament had done.

FDI in retail. So you have got a whole bunch off issues there, from how much of the manufacturing needs to come from local SMEs, to how much infrastructure needs to go in at the back end.

Your views on the fiscal deficit and the current account deficit...

The fiscal deficit to a great deal is a result of subsidies. Subsidies, although beneficial to some extent, over time you have to let market pricing prevail. Otherwise, the subsidies keep getting bigger and bigger and carried forward on and on and on. One, do away with the subsidies such as on diesel and fertilisers. And now you have the food subsidy law, which to some extent is built into the budget this year at Rs 90,000 crore. But still, at a time like this, can you afford it? They have been cutting all non-essential stuff. They might just mortgage the future to meet the current (deficit) targets.

Your views on the rupee, Indian markets, and a Sensex target by year-end...

The recent steps taken by the RBI to strengthen the rupee have so far proved to be the appropriate ones. I think the rupee will stablise in a band around the low 60s. The markets will be range-bound. Sensex probably will be within 19,000 to 20,000, somewhere around there, Nifty will be around 5,750 to 6,000. A lot of that will depend on what Dr (Raghuram) Rajan does, and the impact of the rupee and the QE (quantitative easing) tapering.