In a large and raucous democracy like ours, sometimes it becomes hard to execute progressive policies and offer investors an India which is an attractive investment destination, says Tarun Kataria, chief executive officer – India, Religare Capital Markets. But he is sanguine that issues like GAAR in itself will not lead to an abandonment of plans to invest in a large, emerging market such as India with a 6% GDP growth. Speaking to ET, he says India is too large an economy to ignore. Excerpts:
Is the investment interest slowing down due to slow demand?
By investment interest, if you mean domestic capex spending then no, it is not slowing down due to slow demand. Consumption demand continues to be robust as we see from what the FMCG companies are reporting. Rather investment is slowing down due to uncertainty about the direction of the macro economy, uncertainty about policy direction, uncertainty about reforms and of course high interest rates which makes investment less attractive.
If by investment interest you mean interest from FIIs and FDIs then there remains a cautious interest in India. We have seen interest from Chinese and Southeast Asia countries looking to make mid-sized investments in India. Our offices in Hong Kong, Singapore and Jakarta are now allowing us to participate and advise on these inbound flows.
Do you expect considerable action in the secondary market?
Action in the secondary markets is premised on valuations, FII flows and a conducive macro environment. Valuations in India are not stretched, so buying opportunities remain. Where the concern is the slowing down of FII flows into India after a buoyant January and February and of course the deteriorating macro environment. If the disinvestment process is to be successful, FIIs must participate.
In order for this to happen, we can’t have a repeat of the ONGC process. Besides, the domestic investor base is simply not large enough to absorb Rs 30,000 crore of disinvestment paper that has been planned in the Budget. Meanwhile, well priced, well-governed companies will always find market participation, domestic or offshore.
Do you expect adequate policy measures would be taken that will facilitate this pipeline of fund raising?
Policy makers in India are very bright people. I believe they understand the importance of good policies, progressive policies and offering investors an India which is an attractive investment destination. In a large and raucous democracy like ours, sometimes this becomes hard to execute. We all believe that plenty more can be done to build consensus that will allow decisions and progressive policies to be presented and executed.
The problem, though, is this must happen sooner rather than later. Delaying this risks India experiencing a “funding crisis” given our large and growing fiscal and balance of payments deficits. The market is worried but lives in hope.
Do you think that policy measures like GAAR may result in some FIIs abandoning their investment plans in India?
I believe GAAR in itself will not lead to an abandonment of plans to invest in a large, emerging market like India with a 6% GDP growth. What will create a pause or perhaps a re-evaluation is the overall investment environment. This includes not having retroactive change in laws, improving infrastructure, reducing leakages in the system, creating an environment of urgency, etc.
India is much too large an economy to ignore but policy makers and our political leaders cannot hide behind this for much longer. FII flows are critical to India’s growth story and we must make ourselves an attractive investment destination once again.
Which sectors will be able to attract this money?
In the secondary markets, over the past couple of years, the FMCG sector has witnessed very strong interest. While this will likely continue, given India’s consumption story, other sectors present attractive valuations. Financial services, selectively infrastructure and real estate and IT present interesting opportunities.
Our FDI clients from Asia are increasingly looking at engineering, “old world industries”, pharma and healthcare as investment opportunities.
How do you think interest rates and rupee are going to pan out from here?
While RBI’s 50 basis point cut was a small welcome relief, I’m not convinced this is part of a larger structural move down in rates. The central bank remains concerned, rightly so, about supply side bottlenecks, the imbalance between robust consumption and slowing investment, the structural imbalance in the type of agriculture output versus demand, etc. As a result, structural inflation will remain elevated and so will interest rates.
On the foreign exchange rate too, there is real concern that the rupee weakness continues and perhaps gets accelerated. Our twin deficits are large and growing and our policy makers need to ensure that we remain a beneficiary of currency inflows. There is a risk of a balance of payments crisis rearing its head if corrective action is not implemented soon.