Investment In India | "A longer slowdown ahead for India: Morgan Stanley"

By : Chetan Ahya
Source : economictimes.indiati
Category : Investment In India

As we have argued in this column, the persistent bad growth mix since the credit crisis - high fiscal spending at a time when productive private investment has been declining - is at the heart of the challenging macro environment for India.

This bad growth mix has been steadily taking down India's potential growth rate (growth at which inflation does not accelerate) and we believe that this is now unsustainable, as evident from the stretched macro stability indicators of a higher current account deficit, persistent high inflation and tighter inter-bank liquidity.

These macro imbalances will eventually be corrected - ideally , this should be done efficiently by reducing public expenditure - however, given the lack of policy action thus far, we believe that a suboptimal market-induced correction is underway. The ideal method to correct these imbalances would be for policymakers to change the growth mix from fiscal deficitinduced , consumption-led growth to policy reform-driven , investment-led growth.

Specifically , in our view, policymakers should take steps to lower public spending, including subsidies, and simultaneously introduce steps to revive private investment sentiment. Steps to control public expenditure will help to reduce the macro risks and eventually bring down the cost of capital. The stabilisation of macro imbalances , plus a lower cost of capital and a boost to investment , will help build a virtuous cycle of investment growth and GDP growth acceleration.

This would help to increase long-term potential growth without further fanning macro imbalances. Unfortunately, policymakers have continued to delay meaningful action to address the unsustainable bad mix of growth. The continued reliance on an expansionary fiscal policy has already led to widening of current account deficit , which at a time when capital inflows are slowing, has invoked the pressures of managing the balance of payments deficit.

The cost of capital , which will remain higher for longer in this scenario, will weigh further on investment growth. This market-induced correction would be a suboptimal outcome as lower investment would mean lower potential growth. As the limits of the bad growth mix have been reached, we think that GDP growth is likely to face another leg down. We expect the India economy to grow by a weak 6.3% in the financial year ending March 31, 2013.

The macro challenges and the lack of scope for a counter-cyclical response will mean that we are likely to see a deeper and longer growth slowdown ahead. Indeed, we expect growth to remain in the 6.0-6 .5% range for six quarters in a row (from October-December 2011 to January-March 2013).

As we have highlighted previously, a weaker growth trend lasting for more than 3-4 quarters could have adverse implications on the domestic banking sector as the ratio of non-performing assets tend to rise with a slowing growth trajectory, which then leads to risk aversion in the domestic banking sector.

While we do expect RBI to ease monetary policy in response to a slowing growth trajectory , we believe that it would be difficult to lower the cost of capital effectively in the near term as persistent balance of payments (BoP) stress means that the RBI will face the impossible trinity of managing the exchange rate and controlling interest rates when capital flows are volatile.

Source : http://economictimes.indiatimes.com/opinion/comments-analysis/a-longer-slowdown-ahead-for-india-morgan-stanley/articleshow/13464255.cms

Investment In India | " Retail investors 'scared' over Facebook investment: experts"

By : Business Standard
Source : http://business-standard.com
Category : Investment In India

Amid lawsuit over Facebook's much hyped IPO, experts are now questioning if retail investors -- who were considering it a 'hot deal' -- are in for a shock.

"Retail investors are scared. Most people thought this was a hot deal, and now that it's not, no one knows where the bottom is," Lou Kerner of the Social Internet Fund said. Facebook has also run into trouble with a group of shareholders filing suit against the social networking site, its executives and Morgan Stanley.

The suit, filed on Wednesday morning in the US District Court in Manhattan, charges that Facebook and its lead underwriter concealed "a severe and pronounced reduction" in Facebook revenue growth forecasts before the company's shares were offered to the public.

According to media reports, regulators are examining whether Morgan Stanley, the lead underwriter of the initial public offering, selectively informed clients of an analyst's negative view of Facebook's prospects.

From the start, financial experts were of the opinion that it can be a risky investment.

"I would tell people not to invest in an IPO on the first day. That's what I told a number of clients," said Dorothy Lewis, a Certified Financial Planner and founder and CEO of the Tacoma firm Financial Insights.

She speculated before the stock began trading that there would be missteps. "Because of the demand, I told clients they would not even know what it was trading for," she said.

Former NYU Stern School of Business finance professor Kenneth Froewiss had also forecast that adding Facebook to a portfolio early on is risky for experienced pros as well as investment amateurs.

It's like playing the lottery, he had said.

"Even for those individuals with above-average net worth, purchasing shares at an IPO, especially a 'hot' one that has been widely hyped, is rarely a good idea. The excitement about the company's stock market debut doesn't guarantee long-term interest or success," Froewiss said.

However, experts have said, if allegations prove to be true, it would be a large stain on Facebook's reputation and every bank involved.

The scrip of the company has lost over 20% since it got listed on the Nasdaq exchange on Friday. After closing only a shade above the offer price of $38 on Friday, the stock closed with a loss of 11% on Monday. On Tuesday, Facebook shares dropped 9%.

Source : http://business-standard.com/india/news/retail-investors-scared-over-facebook-investment-experts/165828/on

Investment In India | "Participatory Notes being used to route black money: Government"

By : The Economics Times
Source : http://economictimes.indiatimes.com
Category : Investment In India

NEW DELHI: The government today said Participatory Notes, an instrument for overseas entities to invest in Indian stock market, is being used by Indian citizens to re-invest black money in the country.

"Investment in the Indian Stock Market through PNs is another way in which the black money generated by Indians is re-invested in India," the White Paper on black money tabled in the Parliament said.

Participatory Note is a derivative instrument issued in foreign jurisdictions, by a Foreign Institutional Investor or its sub-accounts against underlying Indian securities. PNs are also popular among overseas investors.

"... through the instrument of PNs, investment can be made in the Indian securities market by those investors who do not wish to be regulated by Indian regulators due to a variety of reasons," the White Paper noted.

The reasons could include the desire of investors to keep their identity anonymous, which is possible also for the reason that PNs/ODIs can be freely traded and easily transferred without disclosing the identity of the actual beneficiaries, it added.

As per the White Paper, since PNs are issued from Offshore Financial Centres (OFCs) such as the Cayman Islands, British Virgin Islands, Switzerland, and Luxembourg, it is possible to hide the identity of the ultimate beneficiaries through multiple layers.

Amid rising concerns that some of the money coming through PNs could be unaccounted wealth under the of FII investment, market regulator Sebi has been taking measures to ensure that these instruments are not used for black money laundering.

Source : http://economictimes.indiatimes.com/news/economy/policy/participatory-notes-being-used-to-route-black-money-government/articleshow/13359967.cms

Investment In India | "Renault developing a global small car, will launch in India first"

By : ONCars.in
Source : http://www.oncars.in
Category : Investment In India

The Renault Nissan alliance has continued to up its investment in India, building their Oragadam facility near Chennai and also developing new vehicles for the developing markets, Of course most of the activities have been India centric, but the plan is also to build this plant as a major export hub for all the developing markets. Both the companies have rebadged each other’s products for the Indian market, trying to get economies of scale.

Continuing on the same lines, we now have confirmation that Renault plans to build a global small car and kickoff its operations from India. The car developed under code name, I2, will placed in the entry-level segment and will compete with the Maruti Alto and Hyundai Eon. This bit of information comes as no surprise, as Nissan announced revival of the Datsun brand for developing markets – which will only offer low price budget cars. The same platform will once again be shared with Renault, although the French badge will come for a premium.

Just like the Datsun small car, Renault has also confirmed that this will be a global product. So we are expecting the car to be exported to few other countries. Renault’s Gerard Detourbet, who is expert in frugal engineering, has been appointed for developing their least expensive product.

At present Renault offers three cars in India and will launch two more – the compact SUV Duster and sedan based on the Nissan Micra by end of this year. There are also rumours that Renault may rebadged the Evalia MPV for the Indian market.

Source : http://www.oncars.in/Car-News-Detail/Renault-developing-a-global-small-car-will-launch-in-India-first/2407

Investment In India | "India gets onto mutual fund investors’ radars"

By :  Associated Press
Source : http://www.dailyherald.com
Category : Investment In India

BOSTON — Investors who see opportunity in Asia’s growth typically think of China first. That’s one reason why there’s no shortage of options for U.S. investors looking to buy a stock mutual fund that focuses on China.

But venture southward to another Asian giant, India, and there are just 10 specialized funds to choose from — less than one-third of the number focusing on China. That’s despite the fact that India is projected to overtake China as the world’s most populous nation around 2030. India also has an economy that’s growing nearly as fast as China’s.

The modest number of India funds is a result of the relatively small value of India’s stocks in the global markets. Mutual funds tracking a broad index of foreign markets typically devote just 1.5 percent of their portfolios to stocks from India. Narrow the focus to funds investing in fast-growing emerging markets, and the weighting in India is 6 percent — that’s one-third as much as they typically hold in Chinese stocks.

Yet India’s profile is rising. Half of the India stock funds have launched within the past year and a half. And there are 10 exchange-traded funds focusing on India, most less than two years old. All focus on a mature stock market with more than 5,000 listed companies, including such names as Infosys Technologies, outsourcing company Wipro, automaker Tata Motors and drugmaker Dr. Reddy’s Laboratories.

The growth in options for investing in India led Morningstar this month to create a new fund category for the group. Previously, they were part of a broader category that invested across much of Asia and the Pacific.

But anyone considering a fund focusing on a single foreign market should know the risks can be much higher than investing in a diversified U.S. stock fund.

For starters, there will be sharp ups and downs. Consider that India funds have posted an average annualized return of 8.7 percent over the past 3 years. Yet in the past 30 days, these funds have lost nearly 12 percent as worries mounted about a host of economic challenges in India, from inflation risks to slowing industrial production.

Also consider whether you already have enough money invested in emerging markets across your portfolio.

“If you’ve already built a balanced international portfolio, investing in a single-country emerging markets fund is like making an extra bet on top of that,” says Bill Rocco, a Morningstar fund analyst. “Think of it like owning a single company’s stock, in terms of the risks and rewards.”

And investors who prefer funds with established records have little to choose from. Just three of the 10 India funds have 5-year records.

Costs are also an issue. The majority charge expense ratios of 1.90 percent or higher. That’s about double the expenses that a typical investor pays on average at international funds of all types

Matthews India (MINDX) is the largest India fund in terms of assets, $673 million, with the category’s top 5-year record and lowest expense ratio. Sharat Shroff manages the 4 star-rated fund with Sunil Asnani. Shroff, who earned a bachelor’s degree and MBA attending schools in India, discussed his outlook in an interview this week. Here are excerpts:

Q: What’s the chief obstacle for India’s economy?

A: The lack of clear and forceful leadership within the ranks of the central government is choking the flow of investments. It’s a significant deterrent for businesses to invest in the country. The aspirations of the people translate into growing demand for goods and services, and it would be a pity if this demand remains unmet because of the intransigence of policymakers.

Q: Do you think India can get back on track, given recent problems such as growing inflation, coupled with an economic slowdown?

A: Many of the problems are self-inflicted. The lack of strong leadership within the government has stalled decision-making, which is delaying the passage of economic reforms that are necessary for investment-led growth.

Q: So why consider investing in India?

A: The underlying fundamentals of the Indian economy remain strong, led by growing household income, a high saving rate that can be channeled into productive investments and good quality companies that can take advantage of these trends. In recent years, there has been a noticeable pickup in economic activity in rural areas. That has provided some cushion to the overall economy.

Also, two-thirds of India’s economy is led by domestic consumption, which helps to reduce volatility in corporate earnings. However, India’s capital markets are entwined with global capital markets. As such, volatility remains a constant companion, and the importance of a longer investment time horizon cannot be overstated.

Q: Is there anything else U.S. investors might be unaware of about India?

A: The reason to get excited is not so much the macroeconomics, but the microeconomic prospects of individual companies. Many are world-class already. These sorts of companies span a wide gamut of sectors like services, pharmaceuticals, telecommunication and financials. Information technology services tend to grab the headlines, but the sector accounts for only 5 percent of gross domestic product and 1 percent of total employment.

Q: I hear plenty about the growth of China’s middle-class, and resulting growth potential for Chinese stocks due to expansion of the domestic economy. Do you see similar potential in India?

A: India’s demographics are in many ways more favorable than China’s. The population is young, and the ratio of working-age people relative to those who are too young or old to work will improve. That is likely to support consumption growth for the next several years. However, in order to harness demographic dividends, the creation of employment opportunities needs to remain vital, otherwise there is a risk of social unrest.

Source : http://www.dailyherald.com/article/20120520/business/705209919/

Investment In India | "India attracts foreign cash"

By : THE ECONOMIST
Source : http://thechronicleherald.ca
Category : Investment In India

Before foreign investors came to India, its finance minister remarked recently, “We did not eat lizards.”

For all the grumbles one hears about India’s economy, there is hardly a sense of desperation. Those foreign investors keep coming: On May 1, Vodafone’s boss met the government. Despite a corruption scandal, a price war, a huge retroactive tax claim and wildly unpredictable regulations, the mobile-telephone firm is committed to its $18.6-billion investment in India, even though its value has fallen by perhaps a third since it was made in 2007.

The boss of Ikea also is reported to be meeting the government soon, despite the shabby way the Swedish furniture chain has been treated. Last year the government said that it would open India to foreign retailers, but then changed its mind. Politicians still fear an onslaught of Ektorp sofas. Wal-Mart scares them even more.

Foreign bosses are persistent because India is important. In the year to March 2012, foreign direct investment was about $50 billion — a record, according to Commerce Minister Anand Sharma. It’s proof, he added, that India is one of the world’s best places for foreign firms.

Whether he is right matters. India aims to fund its current deficit mainly by attracting sticky flows of FDI. Unless oil prices slump, the deficit this fiscal year may balloon to $75 billion, a hefty four per cent of GDP. Already the rupee has fallen, forcing the central bank to intervene.

Based on the past mix of funding India has favoured, it probably needs about $40 billion of FDI a year to avoid a balance-of-payments scare.

Given last year’s buoyant figures, surely India can relax?

No. Those sums seem to exclude exits from India by foreign firms and FDI abroad by Indian groups, such as Tata, which are eager to globalize, or perhaps to diversify away from their homeland. Deduct these items and the net flow of FDI into India last fiscal year was probably less than $30 billion, not nearly enough to justify complacency.

The figures are also lagged, reflecting payments from BP’s investment in oil fields, a deal signed in February 2011.

Worse, FDI may fall sharply. In some ways this is obvious: Indian firms are themselves investing less at home due to red tape, graft and a lack of reforms. The budget threw into confusion the taxation of takeovers by foreigners and the legality of offshore holding vehicles.

Some industries are, in effect, now closed to further foreign investment, notably telecoms due to a corruption scandal, and insurance and retail, where looser rules on outside ownership no longer seem imminent.

The one industry in which the government is eager to attract foreign investment is aviation, since local carriers are floundering.

But global airlines, such as Emirates, don’t seem as interested.

After a decade of booming FDI, a sanity check is due. Balance-of-payments data suggest mediocre returns — a stock of about $200 billion of FDI made profits-after-dividends of $11 billion in the year to March 2011. Assuming a dividend payout ratio of 33 per cent, that implies a roughly eight per cent return on equity, below the cost of capital in India. The central bank expects foreign profits to fall for the year to March 2012.

There are pockets of success. Typically they involve old firms with listed subsidiaries, such as Unilever, Siemens, Holcim and Suzuki. Some foreign outfits have revived under new owners — the candymaker Cadbury under Kraft, for example, and ICI’s paint business under Akzo Nobel. The three biggest foreign banks, Citigroup, HSBC and Standard Chartered, have pedigree in India and do well.

What about newer FDI? Technology firms’ back-office operations such as IBM’s have probably worked out well, though data are scarce.

Some carmakers such as Hyundai have built successful plants in India, partly by picking states with better-run governments.

The overall picture for recent FDI is patchy, however. India’s rough and tumble trips the unwary. On April 30 Adidas, the German shoemaker, said that it would take a charge of as much as $250 million resulting from “commercial irregularities” at its Indian arm.

And it can be hard to escape global trends: Nokia’s Indian sales are a fifth below their peak.

Recent big deals have a bad record. Vodafone’s purchase of its Indian mobile unit was the largest deal ever, and a stinker. The next-biggest, BP’s $7-billion purchase of stakes in the offshore fields of Reliance Industries, faces falling production and reserves. Some analysts think its value has halved. The takeover of Ranbaxy, a generic-drug maker, by Daiichi Sankyo of Japan has been partly written off. NTT DoCoMo’s investment in Tata’s mobile arm has probably fared poorly too.

Some investments have been hurt by the state. POSCO, a South Korean firm, has spent years tangled in red tape as it seeks to build a $12-billion steel plant. Cairn India, an oil firm bought by Vedanta, a London-listed resources firm, was hit by a multibillion-dollar royalties grab that it says breaks a government promise. Several mobile-telecoms firms that used licences awarded in 2008 through a process the Supreme Court has judged illegal may now lose billions.

Is FDI in India over? Of course not. India is still growing faster than economies in the developed world and has vast potential as a manufacturing centre and as a market.

When potential investors hear the horror stories, though, they are likely to think twice.

Unless the government becomes more hospitable, India could face a balance-of-payments setback.

Source : http://thechronicleherald.ca/business/98301-india-attracts-foreign-cash