In his career spanning over 20 years, Deepesh Kumar Vaidya has worked in different capital market companies in Nepal and the United States. His work experience spans from starting his career at Nepal Merchant Banking & Finance Limited (now NMB Bank Limited) in 2000; working as a financial analyst in a Wall Street firm in the US; founding Kriti Capital & Investments Limited in Nepa, in 2011; leading the company as the Managing Director till the merger with Machhapuchhre Capital Limited in 2020. Last month, he joined NMB Capital Limited as the CEO. The HRM caught up with Vaidya to talk about the investment banking scenario in Nepal, and the growth of the capital markets, among other topics.
Excerpts:
What was the idea behind starting Kriti Capital at a time when investment banking was at a nascent stage in Nepal?
I started my career in the merchant banking department of the then Nepal Merchant Banking & Finance Limited (now NMB Bank). During my tenure, I experienced the mundane side of merchant banking services as well as the much-needed growth of the market. We did a couple of things that included offloading the shares of the Grindlays Bank (now Standard Chartered Bank) by Nepal Bank – a secondary offering to the public practiced by a non-government company for the first time in Nepal; managed the Surya Fund, the first private equity (PE) fund in Nepal, as we were its fund advisor.
When I returned from the United States in 2009 after completing my MBA under Fulbright Scholarship, I was clear on moving ahead with investment banking. I clearly saw the need for investment banking, not just in terms of fund management, but also in terms of investment banking as a business that mediates the efficient flow of scarce capital which has been a need in the country for a long. This led to the establishment of Kriti Capital. The company started as a specialized service provider by focusing on portfolio management & corporate advisory service provider and not as a full-fledged merchant bank.
How was the journey with Kriti Capital till it was merged with Machhapuchhre Bank?
Initially, we started with the Corporate Finance Advisory services which was not a licensed business then. We received the license for portfolio management after one and a half years of the company’s inception. Now, the Securities Board Nepal (Sebon) has started issuing licenses for corporate finance advisory services also.
During the initial phase, it was difficult for us to get the right human resources. As I used to teach at the Kathmandu University School of Management (KUSOM), from where I hired my students for Kriti Capital.
It took us a while to convince people about the fund management business. Till the time Kriti Capital got merged with Machhapuchhre Capital, we had a portfolio under management just shy of Rs 1 billion. We were one of the leaders in Portfolio Management Services in terms of fund under management. Similarly, Kriti Capital was probably the market leader in the Corporate Finance Advisory business in the country.
With the market getting bigger, we realized the need to jump to the next level and began looking for a partner. Then the merger with Machhapurchhre Capital took place.
As almost all commercial banks have merchant banking subsidiaries, what should be the roadmap for investment banking in Nepal?
There are two things to consider. First, investment banking as an investment banker, and second, as the investment manager/the fund manager. We talk about portfolio management, mutual fund, and PE in investment management. Investment banking is basically about raising funds vide initial public offering (IPO) or vide the private market at the right price for the issuer as well as the investor. And then there are other supplementary areas such as corporate advisory, due diligence, and audit.
Investment banking should not be seen merely as a subsidiary of commercial banks or insurance companies. It needs to be developed into a complementary industry in the country’s financial market. If we see worldwide practices, investment banking is not a subsidiary of a bank, but a complimentary financial market institution.
My effort as a CEO will be to transform NMB Capital into a merchant bank/investment bank that could make a considerable impact on investment (resources) allocation and hence on the country’s economy.
As the number of merchant banks is increasing, is there availability of sufficient human resources required for the industry?
We have skilled human resources but need to build experienced and industry-oriented human resources. But there are aspiring young people who like to build careers in investment banking after completing their MBA and CA programs. To need to attract them, convince them and retain them to make their career in merchant banking/investment banking.
In the last two years, the domestic stock market has reached a new height. A large number of new investors have entered the market with many people living in Nepal and abroad engaged in stock trading. How do you see this growth?
Every industry has a turning point from which it moved to the next level. For our stock market, the dematerialization of shares was the recent catalyst for the paradigm shift. Online stock trading wasn’t practiced in a full-fledged way till a couple of years ago. After the start of the Covid-19 pandemic, trading online became a necessity for all investors. Improvement in online trading was another milestone for us. Also, it was a time when stock markets across the globe experienced a boom despite historic economic recessions as a result of the pandemic-induced shocks.
The positive part of this bull run in the Nepali stock market was that it generated a huge interest among the people to invest in shares and investment as a source of long-term or short-term asset creation. Now, we have over five million Demat accounts and over 1 million online broker accounts. This is the huge demand side that has been created. Now, the challenge (and our task) is to create the right supply not just to meet the needs of such demand but to give them the right experience and retain them for a longer-term. In my opinion, to increase the supply side we need to bring real sector companies with the right economics and governance. For this, we need to move toward adopting the book building method of share issuance and incentive such performing companies to vie the capital markets.
How has Nepal’s capital market grown over the years as a sector of wealth creation for Nepalis?
If we see the long-term investment in the Nepali stock market, the cumulative average growth rate (CAGR) in the last 20-22 years is 15-16 percent per annum. For a common person who gets 8-9 percent interest for their deposits in the bank, an option to gain 15-16 percent return via capital markets should be a good asset/wealth creation.
But many investors also complain that the regulatory authorities have intervened unnecessarily hampering the growth of the market. Do you think the interventions are justified?
Market interventions are necessary at times but need to be gradual and subtle. Recent regulatory actions that impacted the market can be argued if such actions could have been better managed or implemented.
What changes do you think there will be in the capital market in the coming days?
Information-based investments and the rise of institutional investments will be the new changes in the capital market to adapt to changing market activities. We need clear policies for institutional investment and institutional risk-taking. It has become necessary for us to think about long-term investment mechanisms in addition to the speculative nature of investments.
What are the major areas of focus of NMB Capital? What new areas the company is looking to venture into?
NMB capital is one of the leading institutions in merchant banking. NMB plans to stay ahead of the curve and aspires to do a lot in moving current merchant banking services to full-fledged investment banking service provider in our country. Maintaining the current business and embarking on new ventures without compromising on service quality would be crucial. In terms of growth, an important aspect of which is we are yet to enter the private investment market. As of now, we are engaged with the public investment market. There are large investment deals being done in the private market that need mediation and professional intermediary services of the investment bank. This is an area NMB Capital is looking to step into.
