By Mike Caggeso
Throughout 2007, India has attracted more private equity investments ($10 billion total) than any emerging economy, including China, according to a report from the India-focused advisory firm IndusView.
Comparatively, China only attracted $8.3 billion during that period. Last year, China received $13 billion, compared to the $7 billion by India. Some of the India's major private equity backers are The Blackstone Group LP (BX), Carlyle Group, Washington and Actis Capital, and Temasek Holdings, the investment arm of the Singapore government. And just announced, Wexford Capitol made its first private equity investment in India – through its Indian partner, Baseline Capital Advisors.
Real estate and infrastructure have been the main beneficiaries of outside investment, receiving $5 billion of the $10 billion of the private equity capital that flowed into the country, India's Economic Times reported. Real estate brought in $2.6 billion and telecom took in $2.1 billion.
"India's private equity market can expand four-fold, using deal value as a percentage of the gross domestic product and maintain the top slot ahead of China, its nearest competing economy, and the infrastructure sector will provide the necessary edge," Bundeep Singh Rangar, chairman of IndusView, told the Economic Times.
The Times also reported that India's trajectory in attracting private equity investments has grown by 51% since 1998, currently accounting for 1% of its GDP. Comparatively, private equity accounts for 2.3% of the United States' GDP, and 3.3% of the GDP in the United Kingdom.
India's government estimates that the country will require around $500 billion in investments for road, energy, ports and airports – quickly needed infrastructure elements that will open further opportunities for foreign investors.
Money Moves the Markets
This item slipped under the radar of major U.S. news outlets, but it's very important to mention – especially to globally focused investors – because it cements our philosophy on real growth.
Money moves the markets, but to use a sports metaphor, a good quarterback can't throw touchdowns unless he has a good wide receiver. In this case, private equity firms are choosing India as a long-term investment because the country has a more favorable business climate – in part because of its democratic government, solid banking system and a large, and skilled, English-speaking work force – that takes investment money and makes it grow.
India has also tightly managed its rapid growth with six interest rate cuts in the past 20 months. Some call it excessive, but the cuts have kept inflation and overspending in check.
Meanwhile, the new talk on China isn't that it's hot, but that it's overheated.
That's not to say India is making all the right moves. India may be hurting itself in some areas of growth, especially versus China. And while the country leads in private equity investments, it lags in foreign direct investment.
"Private equity investment is interesting but not the whole story. China has had $50 to $60 billion of foreign direct investment for several years, largely from companies in Japan, Korea and Taiwan, while India's corporate foreign investment has been much lower," said Martin Hutchinson, Contributing Editor to Money Morning.
And even though those are short-term issues, it also shows that India has more room to grow. It has a smaller base than China, but that base is more substantial. It's not as reliant on exports, making its growth more organic, said Karim Rahemtulla an expert on India who is the founder and investment director of the Xcelerated Profits Reports, as well as the editor of the Smart Profits Report newsletter.
"Long term, I would bet on India," Rahemtulla said. "India has more potential because they are starting from a smaller base. They are two decades behind China in the area of infrastructure and manufacturing. Problem is that India does not have a great number of companies that foreigners can easily invest in."
Investing in India
If government reforms, infrastructure development, and foreign investment continue to increase, then India may be able to make up some ground. But it's going to be a tough road ahead, literally and figuratively.
There aren't many places to look if you're interested in getting in on India's developmental push. A good place to start however would be Sterlite Industries India Ltd. (SLT). The company's primary business is the production of copper in India. Sterlite's copper cathodes and cast copper rods can be put to use in housing wires, electrical cables, and telecom cables. The company also mines bauxite and zinc ore, and produces aluminum conductors and other aluminum products.
A more diverse play might be the India Fund Inc. (IFN). The India Fund is a non-diversified, closed-end management investment company that invests in Indian equity securities. At least 80% of the Fund's total assets are invested in equity securities of Indian companies. Its portfolio includes common stocks, warrants and short-term investments.
News and Related Story Links:
- Business Standard:
- Economic Times:
India leads in PE inflows among emerging markets.
- Money Morning:
India's Richest Realtor Lobbies For a Rate Decrease Despite Strong Growth.
- Money Morning:
Why India Is Losing the Race with China – and What It Can Do to Gain Ground.
- Money Morning:
India's Outsourcing Capacities are Evolving and Shrinking at the Same Time.
- Money Morning Investment Research Report:
State Investment Funds: Beware of the Big New Buyers.|
Smart Profits Report.