Madhabi Puri Buch is completing 50 days as the managing director and CEO of ICICI [Get Quote] Securities shortly. In an interview, Buch tells Sidhartha that she has managed to meet some of the targets she had set for herself and is using the present market conditions to focus on innovation.

Excerpts:

Is the pace a little slower at the moment?

The pace is not slower. It is hectic in a different direction. During the time when the market is buoyant, you spend time and energy in execution of what you are doing. This is an excellent time for innovation, strategic thinking and to run a lot of interesting pilots. During a buoyant period, the relative emphasis on innovation is lower. Clients are also open to innovation. You will see some new things coming from the ICICI Securities stable.

What kind of innovation are you planning to bring in?

Without getting into specifics, on the institutional broking side, you will see a lot of changes in the way research is done. In volatile times, there will also be more risk management. On corporate finance, markets are different and there will be more hybrids compared to plain debt and equity.

Do you see a trend of more debt issuances in the coming days and more participation from FIIs in that segment?

There will be more interest in debt and more public offering like the one from Tata Capital, which was oversubscribed. On debt flows, there are two forms in which it will come because FIIs have different mandates on investment. They can get into pure debt but we need to watch it mainly due to liquidity-related reasons. But on convertibles, which are a combination of debt and equity, some new forms will come into the market.

There would be more of hybrids coming rather than pure equity. There is a lot of discussion at the moment, especially in the private equity space. Some of the innovative structures will initially come from the PE stable and then become more popular. There is a fair amount of interest. There are a lot of people out there who are willing to sign cheque books. At the moment, buyers and sellers are engaged in some constructive dialogue.

Auto sales are better, Tata Steel [Get Quote] put out better numbers and the Sensex is around 9,000 now. Are things looking up a bit?

You need to look at the real economy a little differently from the way the market moves. Still there is a significant amount of FII money and therefore, the markets will do well when this segment of investors has fresh flows. That will come after a recovery internationally. So, there is a significant dependence of the markets on the global developments. In the real economy, though we are not completely delinked, the level of dependence is much less. We are continuing to see that at certain price points, various industries are growing. Even in real estate, a cement manufacturer says he is growing due to demand from tier-II and tier-III towns, where there was no significant price escalation.

Wherever the price point is reasonable, growth is taking place. Wherever things had gone beyond the affordability band that we have seen contraction of demand. Similarly, for our daily expenses, we do not borrow to buy our monthly kirana. Only when you have to buy an asset like a car or a home that you take a loan. Sectors such as pharma or FMCG are doing well because people spend out of their income and not by taking credit. Over the next couple of quarters, we will see a very interesting uptrend in terms of production, growth and job creation.

What will be the impact of the rating actions on FIIs?

There are people who subscribe to the rationale that the rating agencies gave and there are people who do not subscribe to it. Rating is a technical constraint but it will not prove to be stumbling block for someone who takes a view on India. Funds look at emerging economies differently from the developed world. Within emerging economies, India and China are two economies where positive growth is projected. There are many investors who are saying that they want to increase the Indian allocation. There is a lot of interest and during our annual conference in Singapore there were some 90 funds which were represented by senior people. We were pleasantly surprised that there was so much interest in India.

How do the valuations look like now?

In case of the large caps, there is a fundamental belief that they will ride out the crisis and the recovery will be sooner than later. Many investors view it as very interesting times and do not see that it will be available at that price again. There is another set, which is seen as vulnerable. For such stocks, it will take longer for confidence to return.

What about financing as there are many projects which are unable to raise funds?

For projects where equity has been tied up and access to resources has been tied up, there is no problem. If you look at the public sector, over the last five-six years, there was lot of positive cash accruals and they were conservative on debt-equity ratio, there are no problems. In the private sector, those raised equity earlier, there is no problem. Some of them are looking at debt and there are cheque books out there but now investors are looking at what is on offer.

Coming to ICICI Securities, is your business in trouble given the market conditions and the segments you operate in?

I completely disagree with that. ICICI Securities is resilient. Relative to other companies in the space we are outperforming the others. Some of them have the advantage of having raised equity but some of it is parked in mutual funds and fixed deposits. If you take that and show it as profits, then that is not something investors were looking at. In terms of matrix such as market share, in the retail broking segment, for instance, we have increased our share by 33 per cent. And, this is not luck by chance. It is the result of specific initiatives that were taken.

On the mergers and acquisitions front, are there more companies looking to hive off non-core areas?

On the cross-border side, it will take a while since it is dependent on the world markets and activities overseas. On the domestic front, there is interest from both sides. There are a lot of people who diversified too much and now want to focus on core activities, provided they good reasonable valuations. On the demand side, if people are in the same business, and valuations are good, there is interest. Then, there are others who are looking at related businesses, which are counter-cyclical, to complete their portfolio. We will see more deals when expectations are a little more realistic.

So, is it a buyer's market?

It is not strictly so since sellers are not so desperate since it is not as if they cannot survive the next month. The question now is who blinks first. Whoever thinks that the market has bottomed out, will blink first.