Home >companies >FMCG firms eye Pakistan but PE funds hesitant

Mumbai: Indian consumer goods makers are sensing a business opportunity in the central bank’s move to open the doors for investment in Pakistan.

Experts cautioned that concerns over Pakistan’s political and economic stability will weigh on the actual capital flows to the neighbour, with which India is engaged in an effort to improve often tense bilateral ties. Pakistani companies, too, may not be keen on Indian investment, they said.

On Friday, the Reserve Bank of India (RBI) allowed domestic entities to invest in Pakistan, in an announcement that dovetailed with a visit to that country by foreign minister S.M. Krishna. In August, RBI had permitted Pakistani citizens and companies to invest in shares and convertible debentures of Indian firms under the foreign direct investment (FDI) route.

Electronics-to-energy group Videocon Industries Ltd’s chairman Venugoapl Dhoot said the Pakistani market represented a “great opportunity and Videocon will go ahead and make use of it."

Photo: Arif Ali/AFP

Pakistan and India are trying to improve ties impared by the November 2008 terrorist attacks on Mumbai by 10 gunmen who, India alleges, belonged to the Pakistan-based Lashkar-e-Taiba group. Pakistan has denied any state links to the the attacks, which left 166 people dead.

The neighbours have moved cautiously to expand trade and investment links, overcoming decades of mutual distrust. Bilateral trade between the neighbours is about $2.6 billion, according to industry lobby Associated Chambers of Commerce and Industry of India (Assocham), and is expected to reach $8 billion in the next two years.

Last month, Godrej Group said it planned to establish operations in Pakistan and Myanmar. Chairman Adi Godrej told the Financial Times of London that his company would begin exporting to Pakistan this year.

“We will be setting up businesses before the end of the calendar year in Pakistan," Godrej was quoted as saying in the newspaper. “Pakistan is the sixth largest country in the world in terms of population, so the opportunity is reasonably good."

With its population of more than 180 million and similar demographics and income distribution as well as social trends such as the emergence of nuclear families, Pakistan is a viable market for Indian firms. The problem, however, lies in the underlying political tensions between the two nations.

“RBI has opened up this new route but we should not expect investment to happen overnight due to the underlying tensions," said Ambareesh Baliga, market analyst and chief executive at Way2wealth Brokers Pvt. Ltd.

Capital investments in Pakistan by the likes of Indian private equity and venture capital investors as well as business houses are likely to be modest.

The opening of the FDI route to Pakistan is an “emotional" step, said Shefali Goradia, partner, corporate tax practice, at financial advisory firm BMR Advisors Pvt. Ltd, “but a floodgate will not open up".

“PE firms look for political stability, economy and good prospects. There are some who are investing there already. Not many will do it," said Goradia.

PE funding from India will be difficult, said Avinash Gupta, leader of the financial advisory practice at Deloitte Touche Tohmatsu India Pvt. Ltd, adding that there are few new businesses in Pakistan and the market is mostly dominated by old businesses such as textiles.

“There are many Dubai businessmen running enterprises in Pakistan and there is a higher affinity to get or raise capital from there," Gupta said. “Money from India will be looked at with suspicion."

deepti.c@livemint,.com

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