Finding reason to invest in India amid BRIC letdown
Living in India, a BRIC economy, we are startled at what is happening around us. As recently as 2010, when the four BRIC countries accounted for more than a quarter of the world's land area and more than 40 percent of the world's population, they accounted for only one-quarter of the world gross national income. Just a conversion of the land to more profitable yields, or this huge BRIC population increasing its share of the world's gross national income, had salivated the most passive of investors—resulting in huge inflows into all these countries.
Contrast this to 2014. China, the strongest BRIC, is exhibiting weak data. Russia is trying to balance heightened political issues with threats to the Sochi Winter Olympics. Brazil and India are exhibiting high current account deficits.
When it comes to India, there is bad news.
For one, there seems to be little to no interest in fresh overseas investment into India. Opinion makers are bearish on India—or at least they have expressed concerns and are suggesting that investors step back. The problem is that the Indian rupee (INR) lost 13 percent against the U.S. dollar in 2013. It takes a lot to outperform that loss, making the same salivating investors of 2010 go cautious. In addition, a lot of money has been spent on infrastructure, but a huge number of projects have been stalled—India has more than $500 billion in nonproductive infrastructure assets, including unfinished roads and bridges. As these become productive, the situation will improve.
India has its own political dilemma, too, with no clear winner. India operates like Europe, a monetary union, with a huge number of operating nuances between the states (35 regional languages for starters) and important political ambitions. This is creating an impasse, which is making economic decision-making difficult. Forthcoming elections in April and May 2014—yes, it requires six weeks for India's 1.2 billion population to conduct an election—could change policies radically.
(Read more: Is India going back to bullion?)
Other macroeconomic factors are aiding this investment slowdown. Unlike in 2008, when the last global "crisis" was seen, governments today are acting more selfish in their economic postulations. Previously, countries have acted in concert. Now they do not. The U.S., the biggest economic driver in the world, has introduced its tapering program. Though this keeps U.S. economic numbers in check in the short run, this foretells difficulties for countries like India. Argentina, with its deep devaluation of the peso, China hiding its economic intentions, and Turkey with its knee-jerk movement in interest rates are examples of how governments have perhaps acted "selfishly."
That said, there is plenty of good news, too, and investment opportunities exist in niche areas. India has always leapfrogged ahead in innovation, skipping layered growth.
The wireless revolution in India happened, as an example, before fixed line. Wireless connections bypassed fixed-line connections in 2004, but wireless Internet usage has also passed fixed-line Internet usage in 2012.
E-commerce is leaping. It has created a larger footprint in a shorter time than store retailing. E-commerce in India, currently $2 billion, constitutes 0.25 percent of the overall retail industry. In comparison, e-commerce as a percentage of retail is 6 percent in China, 9 percent in the U.S. and 4 percent in Latin America. Growth in e-commerce in India thus looks immense. Justdial, India's version of Yelp, is a good example.
Mobile banking is also exhibiting huge growth and will probably replace credit and debit cards. India will predictably apply fresh restrictions (e.g. protocols, new net worth norms) after it experienced some pain (after some scam or loss as in the Vodafone case), thus making the country a follower rather than a leader in this space. In the past, such restrictions have slowed growth initially but saved money and resources over the long term, benefiting local players, including Bharti Airtel.
In health care, additional insurance schemes have increased the propensity to spend. New opportunities exist in hospital growth, doctor and nurse training, medical record-keeping and all ancillary businesses that support health care. Take Apollo Hospitals, expanding by getting more and more single hospitals into its fold. Its brand allows it to charge premiums. Another sector is pathology lab companies, which have received venture capital investments. One, Dr Lal Pathlabs, is expected to list soon at a value of $850 million.
In pharmaceuticals, India is now a serious global player, featuring companies including Sun Pharma and Cipla. In generics, India controls a significant part of the world market. Multinational pharmaceutical companies are investing in India, as they find it a cheap place to manufacture, as well as to gain the fringe benefit of the potential huge local-growth opportunity.
In April 2013, Unilever announced a 21 percent premium to market bid to buy back 22.5 percent of its local subsidiary HUVR:IN, valued at $5 billion. Other long-term players, such as Diageo and GlaxoSmithKline, have recently increased their ownership in their local subsidiaries. These are positive signals.
—By Pashupati Advani, founder of India-based cross-border business consulting firm Global Foray and member of the CNBC-YPO Chief Executive Network.
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