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India will remain a very attractive place to do business

How would you classify the Indian investment climate against the backdrop of an economic slowdown?

India has been quite a hot destination for investment over the past few years. In the fiscal year 2018-19, India attracted $44 billion in inbound FDI. This is capital that chooses target destinations freely. In the same period, Vietnam attracted about half that. Though for a fair comparison, these numbers should be adjusted for relative economy size etc. They point to the fact that India is an attractive investment destination. On other parameters, the signs may look weaker. For instance, Nomura had a report on the US-China trade war and which countries were gaining trade share and ultimately investment share. Taiwan and Vietnam were large gainers, I suspect, mostly because of their electronics manufacturing base. Malaysia and Chile were also up there. India was not as significant as it ought to be. India’s household savings rate as a percentage of GDP and our investment rates are also in decline. To me, if this is a secular trend, it is the most worrying element. There can be a chicken-and-egg type of argument: what came first, the slowdown in the economy or the slowdown in investments, but these reinforce each other. Given high capacity utilisation levels in many sectors, the need for infrastructure and given the low penetration levels in so many consumer categories, I believe that India will remain a very attractive place to do business. This slowdown is not the end of the world; we have been through downturns before. Obviously, we should not ignore it. But we should also not get overwhelmed by it.

Does the outlook for a continued strong growth momentum in private equity in India look promising?

India has seen tremendous private equity interest. Last fiscal, some $37 billion was invested by PE funds. It’s become a mainstream financing tool. The industry is mature enough now that we see at least six different distinct segments appearing: buyouts, growth capital, technology venture capital, private equity style investment in public companies, structured credit, and real estate. Emerging markets private equity bets are on growth and have high relative valuations, while developed markets private equity bets are on stable cash flow, low valuation, and financial engineering. Hedge fund managers use the term alpha to measure the extra return from a particular market or strategy. From the figures I have seen, if you compare like-with-like, India does generate 300 to 400 basis points alpha in dollar terms over developed markets. I was told that for the global behemoth Blackstone, India has been the best performing investment destination over the past few years. If you compound this alpha over a decade or more, it can be a real outlier.

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