Mumbai: Despite rising inflation and interest rates, investors said on Sunday they retain faith in India’s long-term growth prospects but want the government to bring reforms in sectors such as insurance, infrastructure, manufacturing and mining to mitigate investment risks.
India is an investment opportunity not only because of quick-paced economic growth but also because companies are scaling up in small cities and towns, said investors at the India Economic Summit of the World Economic Forum in Mumbai. Other factors contributing to growth include an expanding middle class, a large population with its major chunk aged 15-35 years and increasing urbanization.
Experts weigh in on the promises and perils of investing in Indian markets in a time of uncertainty
“We are continuously looking at how to deepen investments in India,” said Anil K Kakani, senior adviser, US treasury department. “American investors are expecting the reforms to continue to ensure that risks of investments are being contained. There are regulatory bottlenecks but India is ready and open for large scale investments.”
Allowing insurance companies to go public, clear policies on environmental clearances for mining, and passing the company and law Bills will be helpful steps, investors said.
“Consistency in policy is important. It could be adverse or pro, but it has to be consistent,” said Manish Kejriwal, senior adviser, Temasek Holdings, India.
Investors said it is difficult to be bullish on investment opportunities in the short term, but India is extremely attractive from a longer-term perspective.
“Our domestic growth is about 7.5%. The good thing is foreign direct investments (FDIs) are growing well. The FDI inflow is nearly $20 billion and will grow to $80 billion in 12 to 24 months,” said V.K. Bansal, chairman, India investment banking division, Morgan Stanley, India.
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There is uncertainty in the market for a short term view, said Sandeep Naik, co-head, Apax Partners India Advisers, a private equity firm, citing sluggish infrastructure development, corruption, peaking interest rates and high inflation. “It’s (investing in India) a marathon, not a sprint. You need patience in this market and we are taking a long-term view,” he said.
Investors said it’s a good time for those who have strong balance sheets to make investments as valuations are low and assets are available at inexpensive rates. “Wait up and you will make money. It’s not a time for short term realization,” said Udayan Sen, chief executive and managing partners, Deloitte India.
While domestic consumption has been the most sought after theme for investors in India, interest has also picked up in financial services (including banks, gold loan companies and non-banking financial institutions), media, real estate, ecommerce and renewable energy.
In financial services, local models have been successful, said Naik, citing the example of gold lending. “A global investor may not get it and may call it pawn broking, but these are the onions to peel in India to see where opportunities lie,” he said.
Information technology (IT) and information technology enabled services (ITeS) companies will also continue to be attractive, investors said. A lot of companies that came to India looking for cost arbitrage are now holding back due to the value that Indian companies are bringing, said Sen.
A unique feature of the Indian private equity market is that unlisted companies often come at a premium over listed ones. Investors do not see this as a constraint, saying they have to pay for growth. While deals are taking longer than usual to close due to differences over valuation and exhaustive due diligence, investors are hopeful of the investment activity picking up in 2012. A deal typically takes three-four months to close, but talks these days run for as long as eight-nine months.
“For 2012, there is some uncertainty but deals will come back on the back of reforms that are being promised,” said Rahul Guptan, head of Global India Capital Markets Group at global law firm Clifford Chance, Singapore.
Guptan, however, cautioned that foreign investors who were earlier talking about multi-billion-dollar investments may now reduce their ticket size.
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