‘FDI announcements are often followed by nothing or lots of red tape’

Abha Bakaya | Updated on January 22, 2018 Published on November 11, 2015


The actual flow of FDI and ease-of-doing business, particularly for MNCs, are most important, says Jeff Chowdhry of LGM

Ahead of Diwali, the Narendra Modi government announced a major easing of FDI rules to quell investors’ apprehension that the BJP’s defeat in Bihar will slow down reforms. Bloomberg TV India caught up with Jeff Chowdhry, Head of Emerging Market Equities at LGM Investments, to get a perception of foreign investors on India and their expectations from the Prime Minister ahead of his UK visit.

We have just seen the Bihar elections conclude. The BJP lost there and this sparked uncertainty over reforms. But overall, what is the sentiment among investors? What is their perception on the reform agenda?

Modi was elected about 18 months ago. I think there were very high expectations when he came on board. I think some people in the market thought that he could copy the Gujarat model, apply it at the national level and off we go to the races.

I think the reality on the ground has been so much different. I think it has been difficult with the political situation, it has been difficult on the bureaucracy in terms of really doing something at the national level, which he was able to do in Gujarat. So I think the reality is with us now.

So is there a worry that we won’t see that push on reforms? We got the winter session of Parliament coming up. We haven’t yet seen any dramatic reforms with regard to, for example, GST or some of these key Bills that everyone was hoping to see passed already or see some action on. Do you think the markets have already factored that in?

I think the market has factored some of it in. You mentioned the GST Bill. Land reforms is another one which is essentially dead now, at this point in time.

But there have been a number of announcements — obviously on FDI — which I have been hopeful about. And I’m really hopeful that the setback in Bihar is actually a silver-lining in a sense that it basically encourages Modi to push ahead with reforms, rather than saying, ‘I am not going to do anything for the rest of my term’.

We had so many announcements coming out the day before Diwali, about FDI in various sectors. I want to get a sense of how you respond to some of these announcements. Do you really see it as a step forward or do you see it as yet another flash in the pan?

Well, I am afraid it is a mixed thing. I think FDI is always nice in announcements but I think the reality is — you know I have been looking at India for the last 20 years from a foreigner’s perspective although I am an Indian. We have had a lot of announcements on FDI — often FDI announcements are followed by either nothing or, I am afraid, lots of bureaucracy, lots of red tape and nothing really happening on the ground.

So it’s less the announcement I am interested in and more the actual flow of FDI and something which actually suggests it’s easier for people — MNCs in particular — to be able to do business in India.

Let’s take a look at the last 18 months or so. How will you weigh that up in terms of measures that have encouraged you or that you feel demonstrate the government’s intent versus what’s still lacking?

I think the things which have really been encouraging is the fact that in the sectors where there has actually been bureaucracy or politics, it’s been easier. So I think things like the pharmaceutical and insurance sectors have been encouraging.

But, as I said earlier, I think expectations just after Modi was elected were extremely high. I think the reality has been somewhat less than that. This administration has still got four years to run, so there’s still an opportunity for him to make his mark and, more importantly, leave a legacy that he is a reforming PM.

Any other pockets where you would like to see action in — for instance, privatisation, a fiscal pull-back? We are again just a few months away from the Budget. Last financial year, anyway, we couldn’t expect too much. This year would there still be more on an investor’s wish list?

Yes, from an investor’s perspective and MNC’s perspective it’s much less to do with the budget or FDI but actual resolution of some of these ongoing disputes like the Vodafone tax dispute.

Those are the sorts of things that make people say, ‘really this is nonsense’ — going back in history and trying to do collection for the tax department and conduct raids which in some cases are irrelevant.

I mean if you take the Nestle story…Nestle has been completely cleared of any problems in terms of their Maggi noodles.

Now, that whole episode, if it had been done properly, was unnecessary, wasn’t needed and it caused a scare within India for the consumers as well as the company.

And it didn’t happen anywhere else in this world. I can buy Maggi noodles here down the road and we can buy that every day. So why do it?

So I think the Indian government and bureaucracy need to look at themselves. If they do want MNCs, they have got to ease up in terms of those areas.

Of late, when we talk about India in an emerging market basket, we just keep hearing that relatively it looks better, we are in a sweet spot and we have a lot of advantages in the year gone by. But when you take a look at India in itself, just on the basis of the most recent macroeconomic indicators, for instance, is the story still encouraging?

Well, at LGM here, we invest in companies rather than the economies. So we look at individual companies we want to invest in for the long term. And the good news, as far as India is concerned, is we can find lots of companies we want to invest in.

So, despite what I said earlier, of the bureaucracy and the tax situation and sometimes politics, there are some very good, well-run companies in India that we want to own for the long term. India is our biggest allocation on the global emerging market front. We have around 30 per cent of our portfolio in India.

So it’s a market that we like very much. But if some of the things I talked about earlier are addressed, the potential for a lot of foreign investors could be much higher.

What is the kind of impact you see going forward of some of the global events as well — if we do see that Fed rate hike? I also want to get your take on whether or not that’s coming this year itself. Do you see a shift away in terms of liquidity?

Let me just answer the first question. Chances are that the Fed will hike rates this year.

If you look at the US labour market report last Friday it is pretty obvious that the US economy is in really good shape and in particular they are creating jobs and the Federal Reserve always said that employment was their key barometer — so they have now got that.

So it’s quite likely that interest rates will go up this year. And remember it has been almost 10 years since they last hiked rates. They need to raise rates. So I think that is going to happen this year and maybe I think they will gradually hike next year.

And quantitative easing (QE) has basically done its job as far as the US is concerned. So that’s one thing.

And what does this mean for the rest of the world? The dollar will continue to go up as a result of that. I think some emerging markets will remain under pressure but not all. And this is where I think India kind of stands out is that a lot of Indian companies are not sensitive to US interest rates.

They are very much a beneficiary of low commodity prices and in many cases, certainly in the private sector, they are extremely well run. I mean we look at a lot of companies around and the private sector companies in India are among the best managed in the world and I compare that with many companies in the global emerging markets.

Published on November 11, 2015
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