India will continue to be a magnet for investments

BofA-ML COUNTRY CHIEF SPEAKS ON REGULATIONS, INDIA INC'S RACE FOR GLOBAL ASSETS     KEVAN Watts, who heads the combined operations of Bank of America-Merrill Lynch in the country, says India is a very attractive investment destination from a global perspective. In an interview with ET NOW's senior editor Andy Mukherjee, Mr Watts discusses India's prudent regulatory approach to capital flows and the need for growth with greater income equality. Mr Watts is confident that Indian companies will once again get into the race for buying overseas assets. Excerpts:  You're very bullish on capital flows into India. Why?  There are three reasons. The fundamentals are so positive for India — the demographics, the rate of growth that the economy has been able to sustain over the past decade. Secondly, Indians are sometimes their biggest critics. They are always ready to say what isn't working. But a lot of things are working a lot better.  Such as?  If I look just at my own experience, the Worli sea bridge gets me to airport much faster; it gets me to Bandra-Kurla a lot faster. Sitting at the airport in Mumbai at 4.00 am, waiting for that early morning flight, is a much better experience now than it was five years ago. Thirdly, what's happening in the rest of the world is also very important. And that's probably another reason why I'm in India. The rest of the world, particularly the West, is facing quite a challenging adjustment. We had economies very dependent on consumption, on borrowings. We have to sort out those balance sheets. By comparison, in the global marketplace, India is looking very attractive. India will continue to be a magnet for investments, bearing in mind that you don't want to go overboard in attracting foreign capital. The economy's ability to absorb those funds is a factor.  We don't want too many bubbles.  In fact, you don't want any bubbles; but you can't achieve that. That's too optimistic. But you do need to look at not only attracting foreign capital, but how that capital is put to use. Is it put to use to build the real economy, or is it put to use purely speculatively? You can never entirely separate the two ends of the spectrum.  You talked of a difficult adjustment period for the West. Do you believe the centre of economic activity is gradually shifting eastward to Asia?  No question. There will be inflexion points in that process. The financial crisis that we've lived through — the crisis that my own company Merrill Lynch became a casualty of (I'm not sure being owned by Bank of America is a bad thing, frankly) — is very material to the shift of economic and financial influence. Technology plays an important role in this shift. One of the things that I'm interested in personally is how this wealth that's created by this process gets shared across Asian societies. We really need to work hard to create economic structures that improve people's livelihoods in villages. That's where, I think, technology has an important contribution to make. For example, by bringing local firms like Bharti and ICICI Bank together, you can see the possibility of offering a different kind of service in rural India without building a lot of hard infrastructure.  I can't almost believe my ears. A career investment banker is talking about financial inclusion. That's something new. The world is changing around us, it seems.  I suppose all professions are caricatured. Although financial services and investment banking produce bad outcomes, they produce a lot of good outcomes as well. There has been a lot of focus on the negative aspects of my profession in the past 18 months for understandable reasons,  but I certainly would not believe it justifiable to regard all  investment bankers as participating in the worst excesses.  What are your clients telling you? Have the bruises of the credit crunch healed?  They're healing. Companies are regaining a sense of confidence in the financial system. We're further along than that in India. India has not quite been affected to the same extent as Western economies. Overall, Indian companies are definitely optimistic and looking to the future. Many companies we deal with that are focused on the infrastructure needs in India have very ambitious plans to build very physical things, and a lot of capital has gone into those companies. Their real focus is on execution now — getting it done. We had a period of Indian companies buying companies and assets abroad at the end of the last cycle. That will come back. Whenever you have cataclysmic changes in market levels, M&A activity declines: Buyers and sellers need to get confident again about the price. That takes time.