Summary
1. Indian economy is in a growth phase.Notwithstanding global meltdown.Need for infrastructure development has seen a flurry of activity in that sector.Growth of a company is dependent on its proximity to the political class except perhaps for a Tata.
2. Choose companies that meet International Accounting standards.
Analysis
Indian infrastructure is woeful or awful depending on the eyes of the beholder. Indian Government is pushing for investment in targeted sectors such as Infrastructure, Insurance etc. India needs Ports, Airports, Roads and Transport among others. Many companies sensing the mood and helped by already existing global publicity have gone in a big way to tap the overseas investors.But infrastructure projects take a long time to bear fruit.Toll tapping is still in its infancy in India.GMR group has some experience in building airports (Turkey and India) Lanco (Roads, Buildings and Steel) mostly local players but not big enough to generate a frenzy ( as a Tata or a Reliance would).For an overseas investor, apart from valuation, accounting standards also play an important role. Share price should be dependent on performance of a company rather than sporadic increases due to vague market news or noises.
Indian economy as rightly put in the article is driven by domestic consumption. Due mainly to boom in the BPO sector among others. Export drive comes mostly from the computer software side.Other sectors still have some sort of controls hence export growth is at a snail's pace.
Take for example the Tourism market: Incredible India says the advertisement.But the term incredible is dependent on one's perception. Mostly tourism in India is driven by domestic travel. Foreign visitors form a miniscule part.For a country rich in history and ancient monuments there is little attention paid to attract visitors from overseas.Investment in tourism infrastructure is negligible or unheard of.Even today.Udaipur could have hit the top bracket of the overseas tourists hit list, apart from its Lake Palaces and restaurants it has little else to offer.Nothing has been done to develop the tourists love for the City and that goes for Agra (Taj Mahal) and the list goes on.
Indian IPOs are mostly dependent on the strength of the promoters and the Board. And the sincereity to carry forward the corporate goals.It takes a minimum of 6 months to build an IPO.But disinvestment offers such as Coal India and NHPC have proven track records and income generating assets.It should be easy to read the bottom line. And they could easily raise requisite money. But then accounting standards should meet international levels (GAAP standards) perhaps then valuation could be realistic. Investment in Property companies is another factor. Property valuation needs improvement and be realistic.
India has started opening up since the last decade. It is still coming to terms with International investors. China has a two decade lead over India. For an overseas investor, investment in Indian companies should be selective to those companies which have met or potential to meet international accounting standards and an enviable track record.Rest is for domestic consumption.
Harnath Sithamraju consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
