Terms of Expansion & Investment in India – Ziad K Abdelnour

Another key market worth serious consideration is India. Indian companies today are aggressively seeking partners that can bring them sector knowledge, operating expertise, and access to new markets and technologies. The country has huge flexibility that is, in my opinion, a must for business to thrive. India is indeed the epitome of flexibility. Jeffrey Immelt, CEO and chairman of GE Worldwide, said in an interview with Automation World magazine, “This is the right time to invest in India, and we will be bold on the market here.” The good news is that, unlike China, which faces structural change as it shifts from an export-driven to a consumer-driven economy, India’s growth has long been dependent on domestic demand, even as exports have risen.

However, its major weakness remains infrastructure, with basic transportation, power grid, and irrigation systems lagging behind those of China. In their 2010 report on global private equity activities, Ernst & Young reported that the government plans to increase infrastructure spending by INR1.74 trillion ($38 billion). That is always welcome news in India. The better news is that, unlike China and Brazil, which have witnessed an increase in acquisitions by local private equity firms, India attracts a greater proportion of foreign private equity firms. The country’s legal and governance systems have indeed long attracted private equity investors from around the world.

Since the opening of the economy in 1991, the country has seen huge improvements in both capital markets regulation and in corporate governance. The capital markets do indeed impose higher standards of governance on Indian listed companies, as judged by international benchmarks; and while the regulations per se are also of a high standard, enforcement has the potential to improve further. Most important, India’s banks largely avoided the credit freeze that plagued developed countries, and access to capital has not been a significant issue.

Looking ahead, I believe India should continue to be a growth market, with minority investments the norm. However, buyouts, currently approximately 5 percent of all transactions involving Indian targets, may gain acceptance in the longer term, and this is very good news for investment groups seeking control. Exits should pick up over the next few years, as firms look to take profits on investments made in the late 2000s.

Overall, I think it is fair to say that the secular trend is for India’s economy to grow at a significantly higher rate than the United States or economies of Europe. It is already ranked at 51 of 139 economies in the World Economic Forum’s latest rankings and appears to be climbing. The road will be bumpy on occasion because development is not a neat process. However, it is this very growth, together with occasional disjunctions, that will continue to create unusual profit opportunities for investors.

Thanks
Ziad K Abdelnour