Speaking at the Chasing Growth 2025 investor event, Kotak noted a significant shift in mindset among young business heirs. “What concerns me is that many in this generation are taking the easy way out, especially in the post-Covid world. They claim to be managing family offices and investments, trading in the stock market, allocating funds to mutual funds, and treating it as a full-time job,” he said.
Kotak emphasised the need for these individuals to engage in business operations instead of solely focusing on investments. “If someone has sold a business, they should be thinking about starting, buying, or building another business. Instead, I see many young people saying, ‘I’m running my family office.’ They should be creating real-world businesses. Why not start from scratch?”
He questioned why individuals at 35 or 40 were not contributing more directly to the economy. “I would love to see this generation be hungry for success and build operational businesses. Even today, I firmly believe that the next generation must work hard and create businesses rather than becoming financial investors too early in life.”
Kotak also pointed out the risks posed by high stock valuations in India and the increasing trend of foreign investors pulling out funds. “Should we continue encouraging retail investors to keep buying? Retail investors in India are funnelling money into equities daily, contributing to domestic institutional flows. Money from individuals from Lucknow to Coimbatore is flowing to Boston and Tokyo,” he said. Foreign investors have been taking advantage of high valuations to book profits and repatriate capital.He highlighted the impact of a strong US dollar on capital outflows. “The US dollar is acting like a vacuum pump, sucking capital out of emerging markets,” Kotak said, referring to the effect of rising US Treasury yields above 4.5%. Indian stock valuations remain significantly higher than those in most other global markets.
Kotak provided an overview of India’s external account, noting that foreign portfolio investment (FPI) stands at $800 billion, foreign direct investment (FDI) at nearly $1 trillion, and external commercial borrowings at $700 billion. This brings the total repatriable capital stock to $2.5 trillion, while forex reserves, after accounting for RBI’s forward short positions, are at $560 billion.
India has already witnessed exits from both FPIs and FDIs, with companies like Whirlpool and Hyundai reducing their holdings due to high valuations. In the financial sector, Prudential is exploring the sale of its stake in Prudential ICICI AMC.
“This $2.5 trillion has the potential to leave. Of course, not all of it will, but could 5% exit? Could $100 billion flow out in a year? We have seen that happen before. In such a scenario, two things could happen – RBI depletes its reserves, or the rupee weakens. I believe we could see a mix of both outcomes.”
Kotak stressed the need for a well-planned response from policymakers to address these challenges. “The decision lies between tightening domestic liquidity or allowing the rupee to depreciate. What should our national strategy be? How should we approach this challenge? Our policymakers – including the finance ministry, RBI, and Sebi – must develop a cohesive strategy to counter this ‘vacuum cleaner’ effect.”
He urged a more proactive approach in shaping economic policy to prevent long-term financial risks and ensure sustainable economic growth.
