Insight: India is perceived as a nation of savers. Is this impression changing?
Kotak: One sees the change happening in front of the eyes, almost like a motion picture. In the 80’s and early 90’s, the most popular savings instrument was the Unit Trust of India. When it failed during the late 90’s, the RBI Tax Relief Bonds became extremely popular. To Indians, particularly after the 1992 security scandal, equity was risky and problematic. Most people had significant amount of money in savings instruments. Indians had a middle class value culture – whatever money one made was saved. The paradigm shift from a ‘nation of savers’ to a ‘nation of investors’ started 2003 onwards. Till 2003 -04, equity as a portion of household savings was around 2%, a miniscule amount. In the last three to five years, we have also graduated to become a ‘nation of spenders’, thanks to the spread of television and mobile. We are getting comfortable with spending money and using leverage more than ever before.

Many of our friends are using leverage for getting into real estate and for buying stocks. What happens if there is a sharp downfall?
Leverage is a virtuous circle when things are going well and a vicious circle when things are not going well. It explodes dramatically. Because of the expansionary impact of leverage, one tends to take much higher risks – going up you make a lot of money but while going down, you lose a lot more money faster. This transformation started only three to four years ago. We are still in a wonderful Cinderella period of the good side of leverage. The question really is, how deep is the downward correction going to be? We have seen corporate India getting caught on the wrong side of leverage during the 90’s. Leverage, within reasonable amounts, helps on the path to improve returns. But where does one draw the line? How does one decide where leverage is appropriate and where is it excessive? We must keep in mind that this is a good cycle and that trees do not touch the skies.