Indian equities not in bubble territory: Uday Kotak 

Veteran banker Uday Kotak has said that Indian equities are showing signs of froth but ruled out the build-up of a serious bubble akin to what the Japan’s equity market witnessed in 1989.

“There may be early froth, it may be a little bubbly but things are not out of control. There are enough checks and balances in our system today to consider ourselves in serious bubble territory. As long as we keep watch, we can create sustainable capital formation,” Kotak said at an event held in Mumbai.

The banker’s comments come against the backdrop of the SEBI chief’s remarks on Tuesday about the build-up of froth in the small and mid-cap space that had the potential to become a bubble.

Earlier this month, the regulator mandated all asset management companies to conduct stress tests on small- and mid-cap funds to assess the portfolio liquidity by calculating the time required to sell a quarter and half of its holdings in the event of unusual redemption pressure.

Kotak said India should look at improving its position on the currency front over the next 10-20 years and become a potential currency of trade on its own capacity.

Kotak spoke about the UK, US and Europe legitimising cryptocurrency and investors pooling their money into Bitcoin, in a bid to diversify their investments. This was something that was taking away critical pools of resources from going into capital formation, he said.

Kotak also spoke about the wide disparity in taxation of equity and debt asset classes. “It’s not just about equities, it’s a two-legged race. Taxing equity at 10 per cent is a good thing as it encourages equity culture but a 40 per cent marginal rate of tax on debt dissuades savers from considering the debt options,” he said.

Kotak said the share of mutual fund assets as a percentage of bank deposits had grown to 26 per cent from 10 per cent a decade ago. The share of MFs, alternative investment funds and PMS was 30 per cent of bank deposits and this figure could reach 50 per cent in the next 10 years if adequate guardrails are put in place.

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