global investor feel good

[Guest guest]

GLOBAL INVESTOR (Observations of a visitor)

Appeared in Business Standard, Mumbai edition of 2/1/03, editorial page. Name of author not given.

Having come to India after a fairly long hiatus, one finds an undercurrent of

change clearly visible and many things appearing quite different from what they

were as little as only 18 months ago.

The cities of Mumbai and Bangalore seem to be infected with a sense of urgency

and general sense of buzz conspicuous by its absence in the major financial

capitals of the West. People seem to be on the move and willing to spend with

an abandon missing in the West.

Talking to large Indian corporates one detects a new sense of self belief which

was absent as little as 18 months ago. Many corporate leaders seem to have got

over their doubts as to will they be able to compete with international

companies both in India and overseas. the obvious success of the IT services

industry where India is clearly world class both in terms of skill sets and

size has helped build this broader sense of self confidence. However software

is not only story, with many examples of Indian corporate success on a global

scale being cited in pharma, as well as companies like Bharat Forge or Moser

Baer in more diverse areas. The cost cutting and restructuring which some of

these companies have been able to achieve seems to question the accepted wisdom

that Indian companies have limited control over their cost base.

The aspirations of these corporate leaders also seems to have changed, with many

companies talking of achieving global leadership in a product area or market

segment over 3-5 year time frame and having detailed knowledge of their global

competitors both from a cost and strategic point of view. This aspiration to be

a global player as well as self belief being able to do so was clearly lacking (

at least in my eyes ) as little as two years ago.

Another interesting observation I noticed was that many very bright people who

have been quite negative on the country for many years have now turned much

more positive especially from a forward 3 years perspective. Some cite the

completion of the Golden Quadrilateral and the multiplier effect it will have

on the broad economy, as well as the launch and audacious tariffs of Reliance

Infocomm. Others mention the huge gas finds and the longer term implications of

the passing of the NPA bill and progress on disinvestment. There seems to be a

feeling that things are on the move, progress may be slow but there is clearly

progress and its effects will start accelerating soon. A clear message coming

through again and again was that the government was unable to projects its

economic achievements and that in many areas real progress had been made. The

one very clear caveat to all this which no one was able to quantify was the

danger of the Gujarat experience being repeated across the country, a fear

everyone has but no one is willing to explicitly model.

Talking to friends in the fund management business I was pleasantly surprised by

the huge growth most fund complexes seem to have achieved, but dismayed by the

excessive tit towards debt market oriented schemes. Most fund houses seem to

have 80-85 percent of their total corpus in debt schemes, quite contrary to

international norms. The reasons for the above are not far to seek with debt

schemes giving double digit returns as interest rates declined. However, to

most seasoned observers interest rates have at best another 50-100 basis points

more to decline, implying that one is near the end of the road as far as high

double digit returns from these schemes goes. The one obvious take away from

the above is that investors over the next few months should start moving out of

debt schemes into equity schemes and that too on a large scale. The debt markets

have enjoyed the benefits of the secular decline in interest and it is now the

turn of the equity markets. The more I look at it the more India reminds me of

1982 ( beginning of the US equity bull market ) in respects of valuation

levels, unrecognized improvement in corporate performance, the beginnings of a

sustained uplift in productivity and retail investor skepticism.

The other obvious observation is the prevalence and aggressiveness of retail

finance which was not there two years ago as well as the willingness to use

this finance.

Any way these are just some random thoughts from someone looking at things from

the outside. I am pleasantly surprised by the change that is quite visible and

it is refreshing compared to the dismal morale and outlook that seems to

permeate the West.

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