Foreign investors are wary of recent cases such as Novartis losing the long-fought patent case, income-tax notice to Nokia for tax evasion of Rs 2,000 crore and Vodafone tax liability of Rs 11,200 crore. Despite the recent happenings, Kaushal Aggarwal, Managing Director, Avendus, feels foreign investors will still prefer India.
Excerpts:
How do foreigners see India for investment?
I feel the next 18 months will be big challenge for our country to attract any meaningful investment. However, there are some interesting developments in the last 10 days. We met a delegation of 20 people from one of the world’s largest consumer-focused companies which is scouting to make at least five acquisitions in two to three years. They want to use the current downtrend to create good assets with a 10-15 year view. The company considers the current economic uncertainty as a short-term phenomenon and it feels that right governance will emerge in the long term. We are seeing a drop in short-term momentum — investors are wary about the recent happenings.
What hits foreign investor’s sentiment most?
It is largely to do with decision making. It flows right from the difficulty in capital creation. Anything that requires approval is getting stuck, hampering capital creation. This has a downward effect on multiple things. Overall, there seems to be slightly hostile environment for entrepreneurs India. All our clients whom we speak to are feeling hostility and the pressure is on the Government to manage the current account deficit.
Despite challenges, why do foreign companies invest ?
Sheer market size. If you do a fair assessment, people have created huge asset and profitable business. Look at Samsung, Nestle or Unilever they have all created wonderful assets. There are 50 other examples. For some of these multinational businesses India accounts for more than 10 per cent of their global business. And some of them get more than 20 per cent of their profits from here. If you do a balance score-card on India there are both good and bad things that have happened in the last 15-odd years. The interesting part is there are enough people to bet on the good part.
Is there a revival in private equity (PE) investment?
We are seeing new PE funds showing interest in India. In the last one month, I have met at least three new funds of 10 billion-plus globally who have never sent a cent to India are now showing interest in tapping India. They have 8-10 year view. They think this is good time to enter – valuations are reasonable, markets will be more willing and opportunities aplenty.
Which sectors interest PEs?
They are largely betting on consumer, technology, healthcare and financial services. Except for financial services, people like to put money in capital efficient sectors. The reason for this is, most capital intensive sectors need Government intervention which is a big challenge. Specialised NBFCs such as car finances and mortgage companies have attracted big investments.
What kind of returns PEs deliver?
The fund business is defined by their vintage. Anybody who came in 2006-07 is in dire straits. The 2008-09 vintage is okay, but exit is an issue. Finding strategic buyers even for a profitable business has become tough. This is why we need a vibrant capital market. Sadly, the capital market route is almost shut. Three or four IPOs a year is not a capital market.