Indian prime minister Narendra Modi’s recent visit to the UK has created positive sentiment among UK investors and fund managers with exposure to India and other emerging markets, according to analysts.
While Mr Modi spoke in detail about the two countries working together on areas such as defence and climate change, the focal point for investors was his comments on the attractiveness of India as an investment destination. He also talked about taking steps to make it easier for those looking to do business in India.
“The reaction to Modi’s visit, from the Indian diaspora in particular and in the press, has been extremely positive. As Modi himself said during his Wembley Stadium address, the perception of India is changing,” said Avinash Vazirani, manager of the Jupiter India fund, “The world is waking up to a host of opportunities that India holds, culturally but also when it comes to investment opportunities.”
The Modi-led government has introduced a number of reforms to woo foreign investors. Reports suggest foreign direct investment (FDI) in India has gone up by 15 per cent in the first half of 2015 to $20.5bn (£13.4bn). The main recipients of this increase are services, construction and information technology.
The Indian economy went through a tough time in early 2014 after it was grouped with four other emerging market nations under the name ‘Fragile Five’ due to weak currency after the US Federal Reserve announced rolling back its bond-buying programme. But the economy has recovered since, with the Indian central bank projecting 7.8 per cent growth in 2015-16, a jump from 7.3 per cent at the moment, according to its latest monetary policy statement. But does that mean more money is making its way to India?
“It is not easy to predict investor behaviour,” Mr Vazirani said, adding, “one thing we do know is that retail investors like growth. They like to invest in growing countries, and India is the world’s fastest-growing major economy.” He added that there were a lot of strong macro indicators in India, but the fact that many of these are often being overlooked by investors – and largely by the general analyst community – means that a lot of these benefits are not currently priced in. “If and when these benefits start to flow through, India will certainly be seen as an attractive destination for investors,” Mr Vazirani predicted.
Apart from wooing foreign investors, India is also working towards making an entry into the international bond market. As part of its expansion plans, the Indian railway network will soon issue rupee-denominated bonds on the London Stock Exchange (LSE). Popularly being referred to as ‘masala bonds’, this move will be followed by other Indian companies launching more than £1bn worth of rupee bonds. This move is expected to boost the amount Indian companies are prepared to borrow from foreign markets and will help in their expansion plans.
India, however, still has a number of challenges that keep investors cautious when entering the market. These challenges include corruption, high inflation, a weakening rupee and above all slow growth. But analysts believe the reforms proposed by Mr Modi are gathering pace and will help drive growth in the country along with a positive impact on investor sentiment across the world.
But the reforms are not just limited to the corporate space. As part of the ongoing programme, Mr Modi also signed a £2bn solar deal with UK company, Lightsource. The deal is expected to create 300 jobs and £42m worth of revenue in the UK, as well as benefiting hundreds of families in India. Energy and technology are extremely important to support the growing demand for power and innovation in India.
“The global power demand growth is rising in emerging markets such as India and these markets will see more investment in the space of energy in the coming years,” said Charles Thomas, head of strategy, environmental and sustainable investment at Jupiter.
Mr Modi is expected to launch the International Agency for Solar Policy and Application Initiative at the 21st UN Paris climate conference in December. This initiative will bring together 110 nations and is expected to attract $100m (£65.8m) of solar business by 2020.
