Positive news about the Indian economy combined with a fast-growing market has made India one of the most attractive destinations for foreign institutional investors (FIIs). If FIIs have been flocking to India, it is obvious the returns are handsome. According to Kamal Nath, the Indian minister for commerce and industry, of all the foreign investors in India, no foreign institution has reported any losses. A growing number of international companies are eyeing India as the next crucial investment destination, looking to cut back their reliance on China as much as to tap into the country’s huge market potential.
While China still remains by far the most favored and heavily invested region in Asia and will likely stay so for some time until the true value of Chinese yuan emerges. Concerns about China losing competitiveness when it eventually lets the yuan rise in value is giving a positive edge to India. India’s strength includes its one-billion-plus population, a rapidly emerging rich middle class, well skilled but still relatively competitive labor and political stability says it all.
According to Goldman Sachs, the Indian economy in dollar terms will be the largest in the globe, $27 trillion, by 2050. Indian’s per capita income in dollar terms will grow by 35 times by the year 2050. The Indian economy will be the fastest growing economy over the next 3-5 decades. Growth expected to be approximately 6 percent for the next 3-5 decades and India is already a research hub of the world with 1,500 research institutions and 10,000 higher education institutes.
“There are as many markets that could grow as there are diversified needs in India,” said Hiroki Fujimori, researcher at Mitsui Global Strategic Studies Institute. Prospective investment areas include the automobile market, with both production and sales topping one million units last year and mobile phones with 50 million users. Information technology is another area where investors can be overweight on.
The Bombay Stock index — Sensex — is at an all-time high and some earnings have surprised very much on the upside. I think from now on, it is very important to look at where earnings go from here and look for value besides finding unknown companies who will be future leaders,
Obviously, there is quite a lot of risk in terms of competitive pressures and also in terms of wage growth. A lot of companies are keen to keep staff rather than have high levels of attrition and so mostly the earnings have been positive.
If investors can look at IT, they normally look at large companies such as Infosys, TCS and Wipro. Since some of the smaller players face more competitive pressures, companies such as Infosys and Wipro will be major global winners. I mean they already are, but they will grow in strength and some of the smaller ones will suffer.
So I think from here on, it really is very company-specific. I think there are some sectors, which do have better margins. They have less pressure, so there may be areas such as media, capital goods, cement, consumer related and some of the IT services and telecom where there has been very strong subscriber growth.
Some of the auto companies like Bajaj Auto do not really have these competitive pressures. Although they had good volume growth, they had pressures on their operating margins due to the fact that they had to discount.
India definitely will reward FIIs who are ready to look at the second largest stock market in the world where over 100 fortune 500 companies have operations, and at a time where all major governments in the world have a India strategy and 87 percent of the GDP is consumed locally, I think it’s worth entering India before its too late.
