How is India reducing red tape for investors, and how can clients best angle for access to the market?
India is progressively attracting foreign investment, contributing to its growing prominence in the financial world. GIFT City is being developed as a premium investment hub for both Indian and global investors. Foreign investors can access the Indian stock market through various channels, making it increasingly attractive:
- Nifty 50 Index: Qualified international investors can easily access the NIFTY 50 index. Futures and options linked to the Nifty 50 are also traded in GIFT City, allowing foreign participation without Indian stock exchanges’ regulatory constraints.
- Portfolio Investment Scheme (PIS): Non-resident Indians (NRIs) and persons of Indian origin (PIOs) can invest in Indian stocks via the PIS, routing transactions through a non-resident ordinary (NRO) savings account.
- Foreign Institutional Investors (FIIs): High-net-worth individuals (with a net worth of at least $50 million) can be registered as sub-accounts of an FII.
Furthermore, India has favourable Double Taxation Avoidance Agreements (DTAAs) with countries like Singapore and Dubai, encouraging NRI and global investments. These efforts are positioning India as the emerging market of choice, facilitating smooth capital flow into the Indian markets.
As China-focused funds suffer significant outflows, can India surpass the Asian giant as a destination for investors?
The momentum has already shifted towards India. Take, for instance, the MSCI Emerging Markets Index, where China’s weight has declined from 34% in 2019 to approximately 25% at present. During the same period, India's weight has risen to almost 20%, compared to 8.5% in 2019. While we expect the momentum to remain in favour of India, one must note that India’s strong outperformance was largely led by domestic investors while foreign investor participation has remained relatively limited.
We expect relatively more flows into India. Global investors will find it difficult to ignore the China opportunity given that the total number of billion-dollar companies in China is five times that of India.
Are private market investors on the right side of India’s structural tailwinds, or will it be a while before India’s dealmaking landscape matures?
While there was a visible drop in the value and number of deals across PE, startups, and M&As, the 41% increase in total exit value highlights the liquidity at hand and the potential for accelerated growth in FY25. Factors such as moderating inflation, anticipated declines in interest rates, and recent positive movements in the stock market contribute to this positive outlook. Despite the fact that the number of startups that received funding dropped by 17%, on average, nearly three startups received a cheque every day from an angel investor or a venture capital fund.
Structurally, India is at a sweet spot for foreign direct investments. Total FDI inflows into India in FY24 were at $70.95 Bn and the country's net foreign direct investment may also see a pickup in the near term, supported by political and policy stability amid consistently higher growth and increasing domestic demand in the country.
In the Indian context, the attractiveness of alternative investments is particularly evident, given the country’s ambitious economic growth objectives. Over the past five years, the Indian Alternative Investment Fund (AIFs) industry, comprising Portfolio Management Services (PMS) and AIF, has also experienced a remarkable compound annual growth rate (CAGR) of 26%, reflecting optimism.
As global players return to India to serve its burgeoning market of billionaires, are domestic private banks confident that they can retain market share?
India’s wealth management sector is set for significant growth, driven by rapid wealth creation over the coming decades. The new wealth generated will surpass the total accumulated over the past years, making it a prime market for global players. This ‘new flow’ of wealth versus the existing ‘stock’ is attracting significant global interest.
India has traditionally posed challenges for global firms due to its complex regulatory environment and competitive landscape. However, domestic firms, with their deep-rooted presence and adaptive strategies, adeptly navigate these complexities.
Indian clients’ needs are continuously evolving. Domestic firms, being on the ground, can innovate and adapt their offerings quickly, which is crucial for maintaining a competitive edge.
