December 7, 2013,
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A new report by global accountants Ernst & Young (E&Y) shows India as the most attractive investment destination ahead of China. Researchers point to a number of factors including the recent slew of reforms that resulted in the relaxation of foreign direct investment (FDI) rules that has contributed to a boost in global investor sentiment.
“With sharp currency depreciation and opening up of FDI in various sectors, India has become an attractive destination for foreign investors,” say the report’s authors.
As a result of macro-economic pressures and heavy debt pile, several Indian companies are looking to divest non-core businesses and this has created a large opportunity for foreign players vying for a greater role in the Indian market.
Some commentators warn that the picture may not be as glorious for future investments unless underlying factors are also addressed. Arup Ganguly, managing partner at London-based KNG Securities – specialist broker-dealer in fixed income and convertible bond products, warns:
“Certainly the relaxation of norms is a welcome development and will have some positive impact on investor sentiment. However, many Indian companies remain heavily indebted and unless the government and business leaders are willing to fix the underlying issues vis-a-vis corporate governance, infrastructure development and overall economic growth, the Rupee and brand India will remain under pressure for the foreseeable future,” he says.
A recent survey by Brand Finance ranked India as the 9th most valuable nation brand in the world.
Some of the favourable comparison with China isn’t entirely misplaced.
“As private equity investors in India, we see the country as more attractive because its commercial, legal systems are suited to the transparency and assurances our investors require. The democratic backdrop means there is minimal political and legal risk rather than that associated with the Communist Party of China,” explains India-UK deal maker Alpesh Patel.
With the Indian General Election 2014 around the corner, a lot remains uncertain for the Indian economy but foreign investor confidence for the long term outlook remains extremely positive.
E&Y’s ‘Capital Confidence Barometer’ is a bi-annual report based on a survey of 1,600 senior executives across 70 countries. The findings of the survey highlight the long-term confidence that investors continue to maintain in India as an investment destination.
The US, France and Japan are the top three countries likely to invest in India, according to the report, so the UK may have some catching up to do despite high-profile business delegations to the country earlier this year led by British PM David Cameron.
At 38 per cent, job creation expectations in India are up from 29 per cent six months ago and back to where they were a year ago. Nearly 38 per cent of senior executive surveyed believe that M&A (mergers and acquisitions) volumes in the India will improve over the next 12 months, while 30 per cent of respondents feel that it will remain stable.
Amit Khandelwal, national leader and partner of transaction advisory services at E&Y concludes: “The improved condition of the world economy has helped increase confidence among deal makers, prompting them to take a bolder stance towards executing transactions over the next 12-24 months.”
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