india-investment
Infrastructure Management

Why is India the hottest investment destination in Asia?

Though the monsoon season is long over, it is still raining investments in India. It all started in early September last year when Japan announced the doubling of its investments to $35 billion in India’s public and private-sector projects over the next five years. Within a week, China declared that it would pour $100 billion into India. However, days later, during the visit of Chinese President Xi Jinping, the investment was scaled down to a more realistic $20 billion.

Now governments apart, private investors around the world are exploring business opportunities in India. At the end of October, SoftBank, a Japanese telecom and internet giant, announced its intent to invest nearly $10 billion in India. There is no dearth of players from the US and Europe as well. But why this sudden rush of adrenalin among the investors?   

World economic landscape

The interest shown by foreign investors in India has its roots in the economy of China and Japan. Hitherto, China was the most attractive destination for corporates wanting to make profit. The combination of an expanding economy, booming real estate prices and cheap labor enticed investors to put their bets on the Chinese horse. Now that the Chinese economy is predicted to slow down, with domestic wages on the way up and falling consumer prices – it is no longer the poster boy of Wall Street.

Japan, the third largest economy in the world, is feared to have gone into deep recession. And no doubt, business sentiment has taken a plunge. According to China’s Commerce Ministry, Japan’s direct investment dropped to $2.4 billion in Jan-June 2014, a 50% drop from the same period the previous year. This is attributed to rising labor costs in China and stressed relations between the two countries. As their woes increase, the Japanese government and industry have to find new ways to channel their investments.

Growth in Indian economy

The Indian economic elephant, meanwhile is lumbering along and seemingly picking up pace. Riding high on investor confidence in the market due to a series of economic reforms by the new Indian government, the IMF and World Bank have projected 5.6% growth rate for India this year. Though this figure may not look substantial if looked at in isolation, it is still significant when compared to other developing countries.

India is witnessing a vibrant and lively market. Arvind Singhal, Chairman of Technopak Advisors is ecstatic about Indian retail. According to him the merchandise retail market which is about US$ 525 billion in the current year is poised to cross US$1 trillion by 2020. These are big numbers indeed.

Infrastructure development

The new Indian dispensation has promised world class infrastructure, which is sorely lacking in the country. The ‘Make in India’ is an initiative by the government to transform India into a new global manufacturing hub. Though the overall outlook seems bright, there are some worries, however. At the recently held India Global Forum, Finance Minister Arun Jaitley conceded that building investor confidence was the government’s big worry. The $35 billion committed by Japan comes with a rider that investment depends on economic reforms promised by the Indian government.

The investment by Japan primarily consists of government outlay for developing the Indian transport infrastructure, most of which will be in the $100 billion Delhi-Mumbai industrial corridor, metro transport, and bullet train technology.

China for its part has promised to set up two industrial parks which would act as both manufacturing and export hubs. The initial plan is to manufacture power equipment and then gradually expand to making electronic goods and telecom equipment. India is also considering cooperating with China on a high-speed rail project.

Online and mobile

According to estimates, private equity investments in the first eight months have crossed the Rubicon figure of $ 7.7 billion. Venture capitalists and angel investors are, as usual, looking at making a fast buck. The stupendous success of Alibaba has, in a way, stirred the hornets’ nest. Investors who missed the bus in China, don’t want to repeat the same mistake. SoftBank, a Japanese enterprise had invested $20 million in Alibaba in 2000. The 34% stake in Alibaba is now worth $58 billion.

When SoftBank pitched in over $600 million into Snapdeal, an eCommerce portal, understandably there was palpable excitement among investors.  SoftBank has announced its intention to bring $10 billion into the Indian telecom, ecommerce and other online ventures. Flipkart, another homespun eCommerce venture raked in $1 billion in investment. Amazon, an online behemoth, has committed $2 billion to their Indian arm.

While these eCommerce ventures are attracting bigger bucks, early investors are quietly exiting the scene, albeit with a pot of gold. Secondary sales are happening at a brisk pace. Accel Partners sold a piece of pie in Flipkart for over $150 million. Kalaari Capital is heard to be disinvesting shares worth $100 million in Snapdeal.

Casualties in the midst of plenty

Not every eCommerce venture is making it big. Many small players are finding the turf too hot to handle. DoneByNone, a fashion portal called it quits recently. Yehbi was forced to change track midway unable to face fierce competition. Venture capitalists and angel investors are no longer looking at small eCommerce ventures with the same hunger which they have shown in the past. Some experts say this is business as usual. Small guys will always get beaten up by the big bad boys. There is also a wee little red flag raised in some quarters. Arvind says that though eCommerce demand and the value proposition is compelling, there could be irrational exuberance when it comes to valuations of some of the ecommerce players.

Looking ahead

Overall, the Indian economy is poised to grow at a steady pace. As infrastructure improves, more investments from foreign shores will flow into the country. Combined with robust retail market and an ever expanding customer base, India is likely to become the favorite hunting ground for investors worldwide.

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Sankarambadi Srinivasan

Sankarambadi Srinivasan, ‘Srini’, is a maverick writer, technopreneur and a geek. He writes on transformational social processes and technology trends which influence our daily lives.

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