Year Ender 2016: Taking the PlungeDeepesh Vaidya is confident that investment bankers’ role will become important once the government allows companies to price the shares on their own
Clearly, Deepesh Kumar Vaidya, founder and managing director of Kriti Capital and Investment, is not very happy with developments taking place in the secondary market.
Nepal’s secondary market, the market where assets such as stocks and bonds are traded, is over two decades old. Yet the market is still relying on retail investors, rather than institutional investors, for growth.
The problem with retail investors is that they panic a lot even when there is moderate fluctuation in share prices, prompting sell-offs, thereby raising market volatility, says Vaidya, an MBA degree holder from Brandeis University, International Business School, the US.
Unlike in Nepal, stock markets in developed and many developing countries are dominated by institutional investors. These investors have greater risk appetite and hold on to their shares even when markets fluctuate moderately, avoiding selling pressure. This helps to keep the market stable.
“So, the only way to avert problems being seen in Nepal is to increase the number of institutional players in the secondary market,” says Vaidya, who worked as research associate in Knight Libertas, a broker dealer company in the US, before returning to Nepal for good in 2009.
Once in Nepal he set up Kriti Capital and Investment in 2011, with the aim of working as an investment banker.
Since its inception, the company’s paid-up capital has jumped five-fold from Rs10 million to Rs50 million. Today, it manages portfolio of Rs460 million of 150 of its clients.
“In purview of working as an investment banker, we established Kriti with the aim of working beyond traditional areas in portfolio management,” says Vaidya.
Currently, Kriti is providing services related to primary share management, registrar to shares (RTS), underwriting, portfolio management and depository participant.
The country’s investment bankers have often been criticised for limiting their portfolio by focusing mostly on primary shares and working as commission agents rather than professionals who help clients make informed decisions. So, many investors do not view investment bankers here as financial analysts who could guide them.
“In this context, the regulator should pave the way for investment bankers to diversify their portfolio. Also, capacity of these bankers must be enhanced,” says Vaidya.
But Vaidya is quite confident about investment bankers’ role becoming more important once the government allows companies launching initial public offering (IPO) to price the shares on their own.
Currently, the government has barred companies floating shares on the primary market to price the shares above or below Rs100 each. But the Securities Board of Nepal (Sebon), the securities market regulator, is considering liberalising IPO pricing to attract companies of the real sector to the secondary market.
“Once IPO pricing is liberalised, investment banks will help companies to add premium to their share values. This is when companies launching IPO will start looking for credible investment banks, because they wouldn’t want to undervalue or overvalue their shares. This will trigger real competition,” says Vaidya.
Going forward, Kriti plans to work as venture capitalist.
“In this regard, Sebon should allow investment banks to invest in the real sector companies that are not listed on the stock market,” says Vaidya.