We may increase India investment allocation - Nomura

Until recently, no Japanese financial institution was able to make a dent in the Indian markets despite several attempts over the years. That changed after Nomura acquired Lehman Brothers’ business in Asia, the Middle East and Europe in 2008. The company recently picked up a 35% stake in LIC Mutual Fund — the seventh-largest MF in India.

Takumi Shibata, deputy president and COO of Nomura Holdings and Nomura Securities, who played a key role in the Lehman acquisition, gives ET correspondent the lowdown on Nomura’s plans to step up BPO operations in the country and increase allocations of its funds for investments into the equities market.

What are Nomura’s plans for India? Will you look at more JVs?

Nomura is very keen on establishing itself as a trustworthy financial institution, covering various segments of business — investment banking, equities, fixed income and asset management. We have 2,300 employees in the Powai business process outsourcing unit, who provide services to Nomura’s front, middle and back offices. Of these, 1,300 are IT specialists and security analysts who handle Nomura’s business around the globe.
The BPO, which currently houses 2,300 employees, has a capacity of 4,000 staffers. Our ambition is to use our presence over there more effectively. It makes sense to keep i-banking, equities and fixed income as integral parts of our global network, whereas the AMC has a strong local character, especially for marketing products.

Have you scouted for partners for i-banking and securities?
We looked at opportunities in the past when we were still in the process of increasing our global network in India. But the situation has changed after our success in acquiring European, Middle eastern and Asian business of Lehman. Now that we have formed a global network, we can say for investment banking business we don’t have to look for a local partner.

What about plans for a retail brokerage?

We are a minority shareholder in a retail brokerage business in Thailand. By the same token, we could consider such a presence in retail markets elsewhere. As of now, we are not actively looking at any acquisition opportunities for retail business. We want to focus our attention on building an institutional broking business. We already have a full range of equity businesses in India with all the major houses trading through us. We are gaining market share month on month.

Will the firm look at increasing its proprietary investments in India?

Given the new world order for the financial services industry post the banking crisis, it will bequite unwise for any intermediary to expand investments into illiquid assets. So, we will be cautious in committing our firm’s capital to illiquid investments, which basically means proprietary investments. Yes, we will continue to invest, but we will do so in a very careful and controlled manner. Of all the countries around the world, India is a growing economy, which is a rarity in the current times. The relative share of Indian opportunities looks favourable.

Are you launching an India-specific fund?
We are always looking at opportunities and are ready whenever there is a surge in demand. We have about nine separate funds investing in Japan and two funds in Europe which invest into India. It could well be that we might try to increase the volume of those funds. One of them has 100% fund allocation to India and the rest would have proportional allocation. I would be very surprised if Indian equities have lower allocation in the global equity index.

What’s your broad view on equities?

On an ongoing basis, banks are making money. At the same time, they are suffering from losses on their loan books — auto loans, credit cards, prime loans and also declining rents for commercial properties. All these factors will translate into NPAs. As long as banks make more money than they lose, the crisis is manageable. We hope we don’t really have another round of crisis. Also, in 2009, the global economy is set to shrink for the first time since World War II. When it becomes certain that the world economy is on the road to recovery, we will have much firmer stock markets. Past rallies could be described as bear market rallies and the real recovery will produce a real rally later. Of course, there are exceptions like China and India, where growth prospects still remain.

Nomura acquired Lehman in September 2008. Are you happy with the way things have panned out?

We are very happy with our acquisition. It was a golden opportunity to acquire a reputable client-oriented business. We did not take lines of business and assets and the trading name of Lehman Brothers or anybody who was engaged in committing the firm’s capital to illiquid classes of assets like direct PE type investments, property and construction loans.
We have been very careful in choosing what we acquired, which essentially was limited to the investment banking business, equity markets and fixed income business. Our hypothesis was that investment banking would go back to its roots and short-term money would no longer be used to invest in long-term assets. It was on this premise that we devised our strategy to acquire pieces of Lehman Brothers.

The rise of yen has surprised investors...

One major difference now from yesteryear is that the interest rate differential among major currencies is not that much. So, carry trade is done in much smaller volumes than before. In the past, it was easy to borrow in a low-yielding currency called yen and invest in Australian or US dollars to enjoy the yield differential. That yield differential is shrinking.

There have been questions on the dollar’s relevance as a reserve currency. What’s your view?

The weight of the US dollar in foreign currency reserves will need to go down slightly. No major central bank in the world is interested in creating losses for their own accounts. We know that the euro will become more important.
It does not mean the greenback will become less important. We cannot read the true purpose of countries calling for a super currency. But my personal interpretation is that it’s a shot across the wall, telling the US to take good care of its currency. The dollar will continue to be a major reserve currency and a major settlement currency for years to come.

Source:http://economictimes.indiatimes.com/Interview/Takumi-Shibata-Deputy-President-and-COO-Nomura-Holdings-Securities/articleshow/4796714.cms