Kotak Mahindra Bank Vice Chairman and Managing Director Uday Kotak has said that the time has come for the Indian capital market regulations to allow hostile takeovers of companies. Speaking exclusively to BOOM, Kotak said that in cases where managements do not perform or have failed on governance issues, the market participants should have the freedom to change managements through hostile takeovers. This, Kotak argues will protect the interests of minority investors and will help in developing a free and fair capital market.
Speaking separately at a panel discussion at The Growth Net event, Kotak also appealed to the government to encourage the private sector to take honest risks and grow fearlessly – releasing the ‘animal spirits’ that will help Indian entrepreneurs deliver a booming economy.
Full text of the interview given by Uday Kotak to BOOM’s Jency Jacob.
Q) You have said that hostile takeovers should be allowed. That is quite a strong statement to make. Can you explain what you have in mind?
What I meant by that is that a true free and fair capital markets are when minority investors are truly protected. Managements that do not perform or managements who are not doing the right thing from a governance point of view, the markets should have the ability of changing those managements. And the best way the markets can change the managements is by getting takeovers. And this is particularly prevalent in developed economies and true test of free and fair markets is the ability to change managements.
Q) Does that mean our Takeover Code does not help the cause?
Our takeover code does not stop it. Most of the times the acquirers are worried about the governance issues in the companies and they don’t want to be left holding shells.
Q) Post the recent merger deal between Vodafone and Idea, does it give confidence that more M&As will take place, especially in telecom?
Consolidation in the telecom sector was inevitable. Its a very good development and it effectively ensures that the few players will become more efficient. I hope it leads to a situation where consumers continue to get a good deal.
Q) Moving to the economy, does a 10% GDP growth look possible or are we dreaming too much, too soon?
For me, more than the number, i will be focused on the sustainability. i would like to make sure that we have got The platform and the soft and hard infra that helps create sustainable growth. And I am not obsessed with the double digit number and i am of the view that even if we get seven to eight to nine per cent growth but it is sustainable over a period of time, that is very important. And after achieving sustainability if we think we can accelerate, then that is even better.
Q) What about this talk of India not being focused enough to develop expertise in one big area. China is known for its manufacturing. Is that a fair argument or we should grow the way we are?
My view is that let the market place evolve, let the Indian entrepreneurs shape up. And in due course we will see opportunities. If we think of how India created the software services industry of scale and size we have, it happened not by central planning but the market place evolved. We must created a catalytic and a enabling environment for entrepreneurship to flourish and let the market place create what is winning and what is losing.
Q) One mandatory question on demonetisation. Where we are today, is it safe to say that we should leave the arguments against it and look at it more positively?
My view is that demonetisation has been a big boon for formal sectors. It has also been a big boon for financial savings. It will benefit India over a period of time. We have already seen how household savings have moved away from gold and real estate into formal financial savings. These are all very good long term signs and at the same time, the concept of paying taxes on your earnings is a very important aspect and you have to think of demonetisation on a philosophic basis first and then talk about execution separately.