Though the Government sought to gain some brownie points with its much touted financial reforms, the retail sector has hardly attracted any investment. Policy uncertainties and tax issues involving multinational companies appear to have scared investors. Even biggies like ArcelorMittal and Posco have dropped plans to invest billions of dollars in India, given the delay in acquiring land. Despite its many drawbacks though, foreign investors appear to be bullish on India, given its sheer market size, says Robert Davis, Head – Europe, Avendus Capital (UK), in an interaction with Business Line. Excerpts:
How do global investors look at India given the policy uncertainty?
Global investors still consider India as an attractive investment destination. Though India’s GDP (gross domestic product) growth of five per cent is very low, for the western economy, it is clearly very high. However, the global investor view on India is changing.
Over the last two years, BRICS (Brazil, Russia, India, China and South Africa) were the favoured investment destination. Now, people are looking at other territories such as Turkey and Indonesia as well to invest. Recently, I was speaking to European investors who were comparing India, as an investment destination, to Argentina and Chilly, which is something I have never come across before.
What makes India still attractive despite the policy challenges?
Agreed that there are short term negativities, such as government inaction and bureaucracy hurdles. But if you wish to be a global multinational company, then you cannot afford to ignore India. It has the potential to be a very large market in the consumer goods sector. I feel the long term macro story of India is still very strong. Despite short term negativity, foreign investment will flow into India.
Which are the potential sectors that can attract foreign investment?
The consumer goods sector has huge potential to attract foreign investment, given the population demographics. I also see investments happening in pharmaceuticals and information technology. On the other hand, the global economic slowdown has thrown up interesting investment opportunity for Indian companies abroad. Valuations of global companies in many sectors have turned attractive. My sense says in the short term, we may see many Indian companies investing abroad.
Is the volatile rupee holding up foreign investment?
No, I don’t think so. Western companies think of the long term when they look to India. The volatility in the rupee may be a short term phenomenon. Foreign investors have longer term strategies. On the contrary, the volatile rupee might affect some Indian companies looking to acquire assets outside India. They hope the rupee will recover in three months, so that they can save on acquisition cost.
Is there a revival in the European economy?
There is no dramatic change in the European economy. It is still not good. The economy is growing slightly less than one per cent. The economy is probably flat across Europe. However, things are better than what it once was. More importantly, sentiments have turned positive and the outlook has improved quite a lot. How long the positive sentiment continues is anybody’s call.
So, what are the opportunities that Indian companies are looking for in Europe?
I think we are expecting to see quite a lot of Indian companies making moves in continental Europe such as Germany and France to make their acquisitions. Traditionally, continental Europe is a more difficult region to make acquisitions, because culturally it is less open to the concept of outsourcing and offshoring jobs. However, the mind set has changed of late, due to the urgency to bring down cost.
Recently, TCS acquired France-based enterprise solutions provider Alti SA. Beyond this, to make inroads into Europe will be quite challenging for Indian companies, as it has a different consumer culture with developed brands, and it is quite expensive. It makes more sense to look into developing countries such as Africa rather than investing in Europe.