THE PROMISE OF INDIA | COUNTRY REPORT

ENCOURAGING INVESTMENT

“If India is backing itself, foreign investors will take note,” wrote KKR principals Henry McVey and Sanjay Nayar in early March. Investors do perceive a changed environment, especially in the realm of technology and pharmaceuticals manufacturing. Cross-border technology investors, in search of large markets, have been buying stakes in Indian companies, hoping to replicate the successes of companies such as Uber, Alibaba and eBay.

The Times of India reported in February that Russian billionaire Yuri Milner’s investment fund DST Global was in talks to lead an investment of between $400 million and $500 million in Indian ridesharing app company Ola Cabs, a company in which DST invested $5 million last year. In 2014, DST also invested in a $700 million financing round in Flipkart, an online retailer.  And in October, Japanese telecom and Internet giant SoftBank said it planned to invest nearly $10 billion in India over the next few years.

India’s pharmaceuticals sector has been receiving even greater attention—from private equity investors as well as multinationals. KKR, the private equity firm, announced it is planning to spend $200 million for a minority stake in Hyderabad-based Gland Pharma, a company which produces anticoagulants. Prior to KKR’s involvement with Gland, a number of large Indian generic drug companies had been acquired by global players. That list includes Daiichi Sankyo, Sanofi and Abbott Laboratories. In December 2013, Mylan, the US-based generic drugmaker, acquired Agila Specialties, a vaccine and injectables producer, for  $1.6 billion.

The Modi government can certainly be credited with making the business environment more favorable for foreign investors, but the wave began well before Modi was voted into power. “The Indian economy has benefited more from global turmoil than from the new dynamic prime minister, Mr. Modi, who was elected only nine months ago,” says Karthik Balakrishnan of Globescape Capital, a Washington, DC, cross-border advisory firm.

The collapse of  Russia’s economy, China’s sluggish economic growth and Brazil’s high inflation and slowing GDP growth have all played in India’s favor. “Having a floating currency, relatively transparent public markets and a democratically elected prime minister have sent India’s stock market soaring and [led to] record FDI inflows,” says Balakrishnan.

The Indian economy has benefited more from global turmoil than from the new dynamic prime minister, Mr. Modi, who was elected only nine months ago.

~ Karthik Balarkrishnan of Globescape Capital

Still, India has a long way to go. Long reputed to possess some of the world’s best technology talent, it hasn’t devoted the resources to tap it. Although venture capital invested in India in 2014 rose nearly four-fold to an estimated $4 billion, most of it went to mature businesses, little to start-ups—the drivers of innovation.

And like other developing markets, India has gone through its share of investor affection and disaffection. It still has to solve some of its lingering problems—rural poverty, growing inequality, pervasive corruption. And the low base of tax collection—only 3% of India’s population pay taxes—is an ongoing concern for corporate executives who worry that their firms will continue to have to bear the brunt of financing government spending. But offsetting that is the drop in oil prices: India’s energy bill is estimated to have lessened by $60 billion, giving the country more assets available for investing.

The Institute of International Finance, which tracks global capital flows, reports that in February, capital flows into emerging markets dropped to $12 billion from $23 billion. The money flowed out of troubled economies such as Ukraine, Brazil and Thailand. But Indonesia and India stayed intact.

GFmag.com data Summary: India

* Estimates                                                                                                           
Source: GFMag.com Country Economic Reports