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Episode 5 of PGIM presents Livemint ‘Amend, Adjust and Adapt’
Episode 5 of PGIM presents Livemint ‘Amend, Adjust and Adapt’

India becomes the poster boy for investments in the emerging markets space

  • Episode 5 of PGIM presents Livemint ‘Amend, Adjust and Adapt’, puts the spotlight on how India can become an attractive investment destination in a post-Covid world

The Covid-19 pandemic has slowed down economic growth globally and India has been no exception. As the country limps back to normalcy and tries to pull its economy out of the after-shocks of the pandemic, there is a silver lining for us. The pandemic has speeded up our digitalization journey and opened up a host of new opportunities, provided the focus remains on infrastructure growth and self-reliance.

The latest episode of PGIM India Mutual Fund presents Livemint ‘Amend, Adjust and Adapt’, a series of high-powered panel discussions to find how India can attract more investments from across the emerging markets and ride on this new growth wave. The series is moderated by noted journalist and Founder of Editorji, Vikram Chandra.

The pandemic has shaken the world and the impact on economies has been much deeper than the financial crisis of 2008. India has, undoubtedly, been hit very hard too.

“This is very different in terms of a global shock than the one we had in 2008, which was a financial shock. The financial shock hit about 11-12 countries and within that, you began to see India and China grow. The pandemic is global and has driven down growth everywhere. What is really the big difference between the financial crisis of 2008 and today is that the response today is not a fiscal stimulus," said Junaid Kamal Ahmad, India Country Director, South Asia, The World Bank.

A sharp recovery?

But we are already seeing signs of recovery and there has been a sharp rebound in the markets in the last quarter and experts are hopeful of a quick recovery due to a range of factors unique to India.

“The US, Europe, Japan and many other emerging markets are on track to a rebound. The reasons for this are that this came as an external shock and not because of any inbuilt imbalances. Secondly, the policy response has been very aggressive and that provided a lot of liquidity. Trends of digitalization and technology which were being adopted got accelerated by five years in eight weeks and therefore those countries and sectors which have large technology sectors have benefitted," said John Praveen, MD and Portfolio Manager, QMA, PGIM Company.

Even as the coronavirus vaccine is being hailed as a ray of hope on this path to recovery, experts warn against betting on it as a sole solution to our problems. Investors are pegging their hopes on certain key drivers and using these as a benchmark to compare India to other emerging markets.

“Investors are looking at how resilient the country has been to Covid-19, which countries have given the necessary fiscal survival packages to support businesses and households and which countries are more exposed to sectors that are more resilient to a shock like Covid-19. Countries that are more geared towards the technology sector are doing better. On those parameters, India stands out as the more vulnerable emerging markets," said Sonal Varma, Managing Director and Chief Economist – India and Asia Ex-Japan, Nomura.

Silver lining

The early months of the pandemic were underlined by the plight of the migrant workers which has led to a pivotal shift in the country’s response to social protection. “Social protection, in India, was largely a rural story. Covid forced India to go fast where it was going very gently. Revisiting and rediscovering what a pure public health is with public surveillance, pandemic responses, rapid response is a storyline we need to watch out for," Ahmad said.

So, what are the emerging areas that offer the right investment opportunities? “In the short-run, there has to be more investment in infrastructure and given some of the constraints in public finances, a public private partnership is going to be needed and that is an area where there are opportunities for investment," said Praveen.

“Secondly, even when the Covid crisis is over, the trend towards digitalization is going to continue and India is well positioned among the emerging markets to capitalize on that. A lot of money is coming into tech and online retailing already. Thirdly, because of the trade tensions with China, there is a growing trend globally to move supply chains out of China and that’s where India has a good advantage in supply chain relocation," he further added.

The government needs to offer the right environment for this growth. Experts took a view on what announcements they would make as Finance Minister to get India up and running.

“First, purely from a survival standpoint, I would extend fiscal support to a lot of SMEs, small firms that are still vulnerable. Second, before we start planning long-term growth, it is extremely crucial to fix the financial sector. Third, I would redirect the public resources towards infrastructure as it creates both demand and supply," said Varma.

India shining

India is being seen as the preferred investment destination globally and the pandemic and the stimulus offered by the government after that only seems to have made it more attractive. “We have no intention of selling down. In fact, we are looking for more and more opportunities in India. I started investing in India almost 20 years ago and am still very bullish on India, especially now because I believe the Indian market is moving up at a very nice pace.," said Mark Mobius, Founder, Mobius Capital Partners LLP.

India has been one of the largest holdings in Mobius’ portfolio with themes of software, healthcare with a focus on ancillary services like testing and implants and infrastructure being the key areas. But India needs to simplify some of its processes to make entry of investors easier.

“There are very important measures to find investors which India needs to work on. The first thing would be a reform of the tax system. Then, the movement of capital in and out of the country needs to be simplified," he added.

The legal side

One of the other area where India needs reform is the legal issues around investing in the country. “There is a sense of concern over the regulatory atmosphere in India and that continues to worry people a lot and unfortunately, we are not able to give comfort to foreign investors over the regulatory certainty and stability in India," said Harish Salve, Senior Advocate and Former Solicitor General of India.

The relief package offered by the government after the pandemic is being seen as one of the means to come out of the spiral of low growth and provide an impetus to growth. It has generated a lot of interest among investors, but India has its own share of issues.

“Today, our criminal justice system has become so dysfunctional. We have substituted trial by evidence with trial by embarrassment. This regulatory harassment of people at the hands of enforcement agencies has to stop," Salve said.

What would be Salve’s advice to the government? “We have to de-criminalize the company law. It may sound startling but do we really need the enforcement department today? India’s foreign exchange balances today are 500 billion plus, so foreign currency is not a serious issue. What message will go today if we suspend the operation of the Foreign Exchange Management Act and disband the Enforcement Directorate," he feels.

In addition, he proposed that we rewrite our Prevention of Money Laundering Act and set up a defamation tribunal under the Ministry of Information Broadcasting to deter the media from running its slander campaigns against people.

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