IFR India 2007

IFR India Special Report 2007
3 min read
Emerging Markets

India continues to capture the imagination of international investors. The country’s capital markets are developing almost as quickly as its economy, which is growing at a brisk 8.4%.

The headline numbers really do tell the story because Indian companies are not just taking on the world, they are taking over the world as well. Indian companies have pursued overseas acquisitions worth US$19.33bn so far this year, a quadrupling of volumes for the same period last year. Indian companies are also proving equally attractive targets for foreign companies with inbound M&A volumes up more than fivefold on last year to US$32.9bn. India is now such a hot investment destination that the government has had to take steps to curb dollar inflows.

And almost as impressive as these growth rates is the level of sophistication that Indian issuers, and international issuers doing business in India, are employing to finance themselves.

Equity issuance in offshore markets has risen 62% this year despite a widely held belief that the qualified institutions placement would lead to the demise of widespread use of depository receipts.

Convertible bond issuance has been equally impressive and Indian issuers have been the main drivers of regional growth. And while the Indian converts markets is known for its boom-and-bust cycles, it is in the middle of an impressive boom.

The debt market story has been equally upbeat. Offshore bond issuance has already doubled 2006’s levels, but bank capital continues to dominate as India boasts one of the world’s most active syndicated loan markets.

Progress is even being made in the arcane world of derivatives, with the trading of credit derivatives set to commence before year-end in a move that will expand the range of hedging options (and speculative options) available to Indian investors.

Despite India’s stellar performance and rosy outlook, the future is not without challenges and improving the country’s infrastructure is top of the list. India needs anywhere from US$300bn-US$450bn in infrastructure investment over the next five years in order to maintain its bullet-train growth. These are daunting numbers but, amazingly, financiers seem confident of their ability to raise such amounts.

Stifling regulations are another issue that the Indian authorities must start to address more earnestly. Economic liberalisation is underway and many of the necessary changes are being made but regulatory easing is happening too slowly, which is preventing companies from pursuing the most efficient financing options.

India’s regulators might point to how well India’s structured finance market weathered the US sub-prime storm as evidence of the merit of their cautious approach but the burdensome regulation had all but shut down the Indian securitisation market, meaning there was not much left for global events to batter, making it a fairly shallow victory for regulators.

Indian companies have posted record profits, generated huge free cash flows, achieved spectacular success and been at the centre of an M&A frenzy in spite of a dazzling array of restrictions on how they can finance themselves. Just think what they could achieve if permitted to finance themselves more freely. The ball is rolling. Now let the good times follow.