Narendra Modi, the prime minister of India, in a public rally in New Delhi on the 4th February 2015 observed: “Pradhan Mantri Jan Dhan Yojana is a reflection of how rich India’s poor are at heart. Without any obligation to put any money in the zero balance accounts, they didn’t open an empty account”. This statement communicates a lot about the healthy and visionary present status of the Indian economy. Tushar Garg writes.
India focused hedge funds have posted spectacular returns in 2014 against the backdrop of rising domestic equity markets, and a renewed sense of confidence in the Indian economy which is being led by Narendra Modi. Hedge funds investing with an Indian mandate have topped the performance tables in 2014 and in this special section of The Eurekahedge Report, we ask some of the top performing Indian hedge fund managers about their winning themes during the year, in addition to investor allocation activity and the key macroeconomic themes which they will be watching out for in 2015.
Following recent trends in the world’s advanced economies for increased regulation of alternative investment funds (AIFs), on May 21, 2012, the Securities and Exchange Board of India (SEBI) issued the SEBI (Alternative Investment Funds) Regulations, 2012 (the “AIF Regulations”) to provide a comprehensive framework for the regulation of AIFs in India. SEBI seems to have adopted many of the suggestions and comments it received from stakeholders when it released a draft of the AIF Regulations back in August 2011.
The USD-INR exchange rate is an important indicator of investor sentiment and can significantly impact not only the fortunes of individual firms and sectors but also the government. While this exchange rate has been very stable overall for the last five years, there have been periods of significant volatility. For example, USD-INR moved from 40.0 to 51.5 from March 2008 to March 2009. We believe there is a significant downside risk to USD-INR exchange rate and will explore some of the risk factors here.
A fund without a fund is an oxymoron – but not in the increasingly crowded world of private equity (PE) and venture capitalism.
Financiers are using so-called fundless structures as their calling card to enter India, where an estimated 350-400 PE funds are already jostling for space.
Jaganath Swamy, a former McKinsey and Company consultant and a Wharton MBA, has used one such structure when he headed back to India after a short stint with a large PE fund in New York. He chose to launch a pledge fund after he saw that a number of limited partners (LPs) in the US were unhappy with India-focused funds.
The past year was replete with surprises – both pleasant and unpleasant. Indian companies made global headlines with landmark transactions such as Tata Motors, acquisition of Jaguar and Land Rover and Suzlon’s acquisition of REPower. These were considered very significant for an Indian company. Almost 80% of the Indian transactions of 2008 were cross-border in nature – which in a sense signalled a change in the dynamics of Indian business. Almost all sectors saw active M&A – from infrastructure, to telecommunications, consumer and retails and even transportation and logistics. However, how effective these transactions were remains a question, especially in the light of the experiences of companies that paid the top-dollar valuation and overleveraged themselves in order to fund ambitious expansion plans on the back of projected markets/order books that seem to have diminished significantly.
Investors in private equity funds, known as limited partners or LPs, are sensing opportunities to buy-out the positions or commitments to private equity managers from other LPs that want to limit their exposure to private equity, or do not have the money to meet their so-called unfunded commitments.
In industry parlance, such deals are known as secondaries and private equity managers are referred to as general partners or GPs.
It is no secret that emerging markets hedge funds, specifically those focused on India, fell from their apex last year and took a beating along with the rest of the industry. Funds of all strategies and sizes dropped between 28% and 88% during the course of the year.
The economic slowdown has India’s venture capital firms (VCs) focusing more on shepherding firms they have invested in, and going slow on chasing new deals.
“In the first half of the year, we will focus on existing businesses, and the second half depends on how the first half goes,” says Sandeep Murthy, partner, Kleiner, Perkins, Caufield and Byers, and Sherpalo Ventures.
There were 13 buyout transactions in 2008 as compared to 11 in 2007. The average deal size in India has also increased sharply by 125% to US$36 million in 2008, from about US$16 million in 2005. The prominent buyouts include New Silk Route Advisors acquiring Dawanay Day AV; Future Capital Holdings acquiring Centrum Direct and Centrum Wealth Managers; ILabs Capital picking up a 60% stake in Lehren Entertainment Pvt Ltd; Navis picking up a 60% stake in Sah Petroleum Ltd; and RFCL (an ICICI Venture company) buying out completely Alved Pharma and Foods Pvt Ltd, and the medical diagnostic business of Godrej Industries Ltd.
While the roots of Islamic finance lie in ancient Islamic principles, the development of Islamic finance as an industry is relatively new. Developing at a remarkable pace of about 10-15% a year, this industry now represents a vast global practice which has developed a worldwide presence.
This can be attributed to the fact that many predominantly Islamic nations have seen an increase in financial wealth mainly due to a surge in exports and increasing oil prices. This increasing income is fuelling an increase in demand for new Islamic financial instruments along ethically-aware Shariah principles as an alternative to conventional commercial banking and investment products.
The burgeoning class of Indian entrepreneurs is making a beeline for VC funding to kick-start their ventures. It becomes an imperative to foray into the mindset of the venture capitalist to know what clicks with him. At a conference on private equity for IT/ITeS & Technology held by IVCJ in May, at the Hotel Leela Kempinski, Mumbai, some of the prominent figures of the VC community such as Srini Vudayagiri, MD, Lightspeed Venture Partner; Manik Arora, founder and MD, IDG Ventures India; Sandeep Singhal, Nexus India Capital Advisors Pvt Ltd; and Tejus Sawijani, partner, Singularity Ventures delved into what goes into procuring early stage financing.
After the excesses of investing at dizzying valuations throughout 2007, many of us in the Indian real estate private equity arena are now taking stock of where we are and where we are going in the year ahead in 2008.
It is impossible to overlook the massive profits investors have earned in the Indian market over the past several years. However, beyond the tech-heavy activity that has driven much of these profits, there are many new and interesting areas that private equity and venture capital firms are now aggressively looking to take advantage of. The Indian market is certainly unique. A solid understanding of this market and some behavioural adjustments will be required from investment players who are new to India in order to maximise the returns for their investors. In addition to the required capital, proper research in a challenging market, subtle and savvy managerial skills, and a healthy dose of patience must also be invested to ensure success.
Real estate in India is a classic bubble, even though the real estate folks might not want to believe this. Like in the last days of the dot.com boom, real estate developers tend to dismiss you and say ‘you don’t get it’ if you ask them tough questions.” This is the view of Gaurav Dalmia, founder and chairman of Landmark Holdings, who interestingly enough is a financial investor in real estate projects.
Judging by the number of conferences and other events focused on them in recent months, the emerging market hot spots for hedge fund investment are China and India.
They seem like logical plays - two enormous countries, each with more than a billion people, rapid growth and a fast-rising upper and middle class.
There should be, and indeed are, a wealth of opportunities to be taken in these growing economic powers - both in terms of investment opportunities and potential new hedge fund investors. But there are also a number of barriers to jump and risks to assess before doing so. This has become particularly evident this week, as the Indian exchange fell 4.2% on Monday amid a worldwide downturn.
The BSE Sensex, the benchmark of large-cap Indian stocks, has climbed vertiginously past 8,000, an appreciation of almost 80% from the troughs of 4,505 on 17 May 2004. Foreign Institutional Investors (FIIs) have poured in close to US$17 billion into the Indian equity markets since January 2004, over 44% of the cumulative foreign flows since the markets were opened to foreign investors in 1993. The Indian market is in the grip of a euphoria; often seen in the past 15 years, always holding promise, but seldom failing to disappoint. Therefore it is both natural and fair to question the nature and sustainability of the current Indian opportunity and what it holds for hedge funds.
The Comprehensive Economic Co-operation Agreement ("CECA") between Singapore and India is the first of its kind that India has signed with any country as well as the first that Singapore has signed with a developing country. CECA integrates agreements on trade in goods and services, investment protection and promotion and economic cooperation in fields like education, intellectual property, science and technology.
With the notification of the Securities and Exchange Board of India (SEBI) (Mutual Funds) Regulations, 1993, the asset management business under the private sector took its root. At present, there are 28 mutual funds in India offering different schemes tailored to meet investors' growth, safety and income requirements.
Zaheer runs the LG Asian Plus Fund and has been with LGM since 1995. He has been involved in managing the fund since inception and has taken over full responsibility since June 2000. He is a graduate of Case Western Reserve University and has a MBA from Indiana University.