The BIG Interview: Citi's Aashish Mishra

Global Custodian catches up with the head of securities services for Citi India Aashish Mishra, to discuss the impact of regulatory demands on the Indian market, how foreign and domestic investors view the country as well as some predictions for 2017.
By Paul Walsh
Paul Walsh: What key milestones has the securities space in India seen in 2016?

Aashish Mishra: 2016 has been an exciting year for Indian capital markets. While subject to the overall emerging market view, India continues to be seen as the brightest investment destination amongst emerging markets globally. The equity primary markets have been especially active, with the amount raised through IPOs at a 6 year high of $3.7Bn (per media reports.)

From the securities space perspective, the notable event has been around market access and the industry’s familiarisation with the FPI (Foreign Portfolio Investor) framework. FPI had started off in June 2014, post recommendations from a committee setup by the Securities and Exchange Board of India (SEBI) where Citi was a key participant. But with the associated learning process and evolution, 2016 has probably been the year when the market has grown completely comfortable. Of the ~ 8200 FII/Sub-Accounts as of Jun 2014, only about 2,100 (25%) are left for conversion into FPI.

The other key area which has seen significant development is the fixed income space. This has been considerably eased for investors through a series of measures including increased limits, allowing FPIs access to an online trading platform and potential changes to the current limit auction process.

Finally, it’s also been a good year for the India asset management industry which saw significant net inflows in 2016 driven by good performance and returns, and continues to see a healthy growth rate.

PW: Which regulatory developments are having the most effect on the space?

AM: It’s really been a combination of factors. First and foremost are the series of structural reforms driven by the Government of India that have made the market an attractive investment destination.

SEBI has also significantly eased the market access process and eligibility criteria via the FPI framework, and this has helped translate the investor interest into actual flows.

At the same time, the norms for Offshore Derivative Instruments (ODIs) have been strengthened including alignment with FPI requirements, which has impacted ODI flows.

The recent tax changes (including renegotiated India-Mauritius tax treaty, Singapore tax treaty and GAAR rules) have a significant impact on a section of investors, but the exact impact will only be seen post April 01 2017.

PW: Why is India currently an attractive market for domestic investment?

AM: Investors tell us that there are a number of factors that set India apart as an investment destination. Firstly the structural reforms including infrastructure focus, banking sector reforms, GST, opening up for foreign investment as well as the ease of doing domestic business.

In addition, the country has healthy macroeconomics such as a high GDP, declining inflation and a relatively stable currency.PW: What does the Indian market need to do in terms of infrastructure to attract more foreign investment?

AM: While the foreign portfolio investment (FPI) norms are a significant improvement over the earlier FII/Sub-account rules, based on the FPI experience over the last two years there is still potential for further simplification. Citi is closely engaged with the regulator SEBI on this, along with the rest of the industry.

Investors have also requested the government for further clarity on recent tax changes, especially GAAR rules and potential changes to the India-Singapore tax treaty.

The regulators are also focused on changes needed to deepen the bond market in India, across both government bond as well as the corporate bond market. This includes increased limits, on line trading platform, doing away with limits auction, allowing unlisted debt etc.

Investors have also raised various limits related requests to the regulators across equities and fixed income which can help being more investments if accepted, e.g., increase 10% equity cap for FPIs, position limits for equity futures and options, relax the three-year residual maturity requirement for FPIs investing into corporate bond etc.

PW: What is your take on the current technological developments?

AM: From an Indian securities market point of view, there have been significant recent developments around digitisation which are likely to benefit the local asset management industry through incremental investment flows, wider distribution reach, KYC etc. There is also focus locally on the infrastructure and framework for high frequency trading

PW: What can you see happening as we go into 2017?

AM: Heading into 2017, there will be a lot of focus on global market developments especially US and how they in turn impact emerging markets like India.

Closer to home in India, we have a couple of significant events coming up in the first half of the year - the Annual Budget of the Government of India as well as the key tax changes will take effect from 1 April 2017.

Driven by the tax and regulatory changes, we do see an increasing trend of investors looking to invest directly via FPI ID vs through offshore derivative instruments (ODIs). Citi, with its offerings across custody, equities, FX and futures, is well placed to meet the needs of clients looking at this shift.

From an infrastructure point of view, investors will focus on some of the ongoing changes as well as key asks as and when they come through.

So there will be a fair amount of focus on how these events impact investment flows.

PW: What are your clients focusing on, heading into 2017?

AM: The Citi custody business holds the dominant position across both, the foreign institutional investor space as well as the local institutional investment business. In the foreign institutional investor space, India is likely to continue its position as one of the best investment destinations globally, leading to increased investor flows and allocations. Clients will continue to focus on corporate earnings, implementation of key reforms and impact of overall global market factors. There will also be focus on impact of the immediately regulatory changes around taxation, FPI simplification, fixed income changes etc.

In the local institutional space, where the size of both asset management and pension industry is small by global standards, the outlook is of increased asset accumulation and a high growth rate. This is likely to be driven by themes including market performance, wealth creation in the economy and digitisation.