'India has arrived!'

It will not be an exaggeration to say that Nimesh Kampani, Chairman, JM Morgan Stanley, knows the Bombay Stock Exchange like the back of his hand. His father Nagindas and uncle Jamnadas Morarjee were names to reckon with at the BSE, but Kampani -- the ace merchant banker -- surprises us saying that he has never speculated in the market. That, however, has not stopped him from carrying forward a rich legacy.

One of the key players in making the BSE the engine of growth for the new Indian economy, Kampani has attained fame over the years for making possible mega acquisitions and mergers. He has come to be known as one of India's foremost votaries of liberalisation.

Kampani was one of the leaders who propelled the stock exchange boom in early 1980s when Reliance Industries founder and visionary Dhirubhai Ambani entered the world of equities.

Those who invest in shares cannot forget how Telco's (now named Tata Motors) public issue changed the world of investment forever. Kampani was the merchant banker for that historic issue.

Nimeshbhai, as he is popularly known, is media-shy and a man of few words. For a change, however, he agrees to a rare and exclusive interview with Managing Editor (National Affairs) Sheela Bhatt over dinner in New Delhi and talks about what can bring about changes in India and about the do's and don'ts of investing in the stock market.

The first of a three-part interview:

Please share with us your early memories of the Bombay Stock Exchange.

During the China War in 1962, the market was practically closed for more than a year and share brokers had no income. Again in 1965 -- I was a student, then -- when war broke out with Pakistan, we had a bad time. It was an awful one for Indian stocks.

I started investing in the market around 1973 to earn a living. I have never speculated in my life.

Everything changed in the stock market after 1980. It started with the government's order to foreign companies -- which fell under the purview of Foreign Exchange Regulation Act -- to dilute their holdings in Indian companies.

The government asked foreign companies to sell their stakes and to bring it down to 40 per cent of the total market share. That led to the public issues of Colgate, Hindustan lever, Nestle and others.

The then industry minister George Fernandes told Coca-Cola to get out of the country. Despite the socialistic pattern of the country, some foreign companies wanted to live in India and hence they brought down their shareholding to 40 per cent.

I remember in the 1970s the biggest public issue my company handled was worth Rs 4.5 crore (Rs 45 million) of Southern PetroChemicals. It was a huge task for us.

Also, during this time, I got to manage the public issue of Lakshmi Niwas Mittal's family. It was worth Rs 40 lakh to Rs 50 lakh (Rs 4 million to Rs 5 million). Their family firm, Andhra Steel Corporation, came out with the issue during the war with Bangladesh in 1971.

I can't forget how we filled in our clients forms in candlelit rooms at Mumbai's Natraj Hotel.

How and when did people's perception of the stock market change?

That started with the Tatas' issue of Telco. In 1980, the Tatas called us and said they wanted to have a public issue worth Rs 50 crore (Rs 500 million). It was a startling proposition. I think the issue was worth little less than Rs 50 crore.

Everyone had doubts about raising such a huge amount from the Indian market. The share was finally oversubscribed by five to six times!

It was the first time company leaders said, 'My God, we do not know how to raise money! Indians do have money.' We held some 48 conferences all over India, including small towns. We went to Dubai and Abu Dhabi and got a whopping $10 million.

I went to the Government of India's Company Affairs department to get permission to raise money abroad. The company thought I was insane. It said I won't even get permission for it. Why would someone pay money with repatriation rights?

I showed the Reserve Bank of India's manual to the sceptics. We talked to the ministry of finance. I sent an application. The ministry asked me, 'How can you raise funds like that from abroad?' I said, 'It is written in your manual. Either change it or give me permission.' It gave me permission, but while handing over the papers, I was told, 'Nimesh, we are watching you! You better bring in the money! Don't run away with the permission!'

We worked very hard. We filed a prospectus in London. I flew to West Asia to meet the Tatas' export executives to know which countries they exported to.

I wanted to know who could invest in the Tatas' public issue. The company said it was exporting to West Asia and Africa. I wasn't sure of getting funds from Africa. Therefore, I concentrated on Indians living in West Asia. We arranged meetings among salaried Indians over there.

In our first meeting, we found people laughing at us. What are repatriation rights, they asked.

Earlier, they had a bitter experience of National Defence Remittances bonds. The Government of India had changed its stance over the same. We told them the Tatas are involved and that JM Finance is the merchant banker who would share criminal liability along with the Tatas. We urged them to read the prospectus.

Gradually, we managed to create trust and got $14 million to $15 million for that issue. I had promised the Tatas we would get $10 million.

Looking back, how do you see the issue?

People have earned like anything from the issue. What we sold for Rs 22.50 per share is now valued at Rs 800. The share of Rs 100 was sold for Rs 225. Later, it was spilt into 10. The company has given bonus and other advantages.

Recently, when I went to Kuwait, some Indians met me and said they are yet to sell Telco shares they bought in 1980. Why would anybody complain if your share of Rs 5 has a market value of Rs 800? I myself haven't sold those shares.

Which are the other factors that lifted the Indian stock market?

In 1980, Indian market capitalisation was merely Rs 5,000 crore (Rs 50 billion). Now, it is approximately Rs 27,00,000 crore (Rs 27 trillion). Just imagine the profit of those people who invested in Indian stocks in 1980. After Telco, I managed the issue of Tata Power shares.

We sold a share for Rs 10 which is now priced at Rs 300, not including bonus shares and other advantages. In 1978, ICICI managed Reliance's first public issue.

They sold Reliance share of Rs 10 which is now selling at Rs 700 and investors have earned out of its bonus shares. Reliance and Tata launched the beginning of a great change. (Dhirubhai) Ambani decided to let shareholders earn money. They wanted to create wealth via the equity market. The money that investors invest should be used in growing your industry.

In 1985, Rajiv Gandhi got a 75 per cent majority in Parliament. It raised people's hopes. We all thought Rajiv will do something, that he will change India.

Somehow, India missed the bus. Rajiv exited and V P Singh came to power. One crisis followed another. Rajiv died amidst economic turmoil. We had to pledge gold and we had foreign exchange to buy oil only for a week.

Then entered P V Narasimha Rao and Finance Minister Dr Manmohan Singh. Dr Singh devalued the rupee to make the market attractive to exporters. He told Indian business houses to increase exports as he felt only then would we have foreign reserves. The trade situation was grim.

In retrospect, I feel Dr Singh then played his cards right. He devalued the rupee from Rs 14 to Rs 18 per dollar. In just two days, he devalued it further to Rs 23 against the dollar and then to Rs 27. Thereafter, the rupee remained stable at Rs 33.

The exporters earned and got us the most desired foreign exchange. For, they were earning Rs 33 instead of Rs 13 for every dollar of exported goods.

Thanks to Dr Singh, Indian exporters, who were exporting goods worth $100 million before liberalisation, started earning Rs 140 crore (Rs 1.4 billion). Now, they are earning Rs 440 crore (Rs 44 billion).

Liberalisation, though it propelled growth, was a very painful process. At that time most people did not understand what it meant.

Indians suffered during the process of consolidation from 1991 to 2004. The survival of the fittest became the norm. Sick units closed down as liberalisation meant competition with the world.

Liberalisation also had an advantage. Children of businessmen, professionals and bureaucrats who were studying in the United States or the United Kingdom, started coming back. We have a large number of executives, who have studied abroad and now work in India. They are world class and think in global terms.

Do you want to discuss stock tips? Do you know a hot one? Join the Stock Market Discussion Group