Micro investing is the way to sustainable returns in India, say experts

As the new government brings confidence into the investor community with a string of budgetary announcements, investors shift focus from cautious to conservative investing.

Private equity fund managers wanted clarity on Goods and Services Tax (GST), tax pass through status, project clearances for infrastructure firms and promise of ease of business through simple structures.  The Budget met most of these expectations.

Both foreign investors and promoters are approaching capital conservatively in anticipation to leverage the opportunities expected in financial year 2016-17. Fund managers have high hopes from the government and know that sustainable GDP growth and realistic current account deficit are achievable. Transparency is the key to bringing in more foreign money into the country.

These views and more were expressed by panellists at the recent VCCircle India Limited Partners Summit 2015. The panel was moderated by Amit Bhatiani, partner, CX Partners. Others like Rahul Bhasin, managing partner, Baring Private Equity Partners India; Srinath Srinivasan, CEO, Oman India Joint Investment Fund; Vish Narain, Country Head, TPG Growth; and Padmanabh Sinha, managing partner, Tata Opportunities Fund participated in the discussion.

The panellists started off a discussion on the current situation of the Indian economy comprising the need to have a bottoms-up chase for returns rather than sectoral picks. "We are seeing all players coming to commit capital in anticipation that in 2016-17 things will be robust and we need to be ready to catch the right opportunity," says Srinivasan of Oman India Joint Investment Fund.

Fund managers expect a sustainable GDP and inflation rate. "The economy that was inherited by this government was in a mess. The previous government had not focused on sustainable growth but printed money and handed it out to various stakeholders in the society which led to a consumption boom across various sectors and slowed growth and inflation numbers," says Bhasin of Baring Private Equity Partners India.

Investors believe a tough macro-environment globally is enhancing attraction towards India. Most debt asset classes globally have given sub-optimal or zero returns. "Other BRIC countries like Brazil and China are driven by commodities. So the drop in commodities price reduction has helped India gain attraction. China is also driven by consumer demand but it is now slowing down," says Narain of TPG Growth.

If one is to believe these panellists, the future is bright for India. The country has expanded its products and services portfolio and entered segments which were earlier not its forte. The panellists' only cautious advice to investors is to not swim with the tide of positive sentiments and invest with realistic valuations. "What is critical is to underwrite sensibly. Price discipline is crucial," advises Sinha of Tata Opportunities Fund.

"In 2003, China had $4 billion of market capitalisation and in less than five years the investors made 25x out of it," says Prasanna of Morgan Creek Capital Management. "India is currently $4 billion in market capitalisation and could be 34x in seven years," he said.