Count on M&A transactions to explode in India
Economic downturns are polished tools used by governments in developing countries to kick start economic reforms. Investments in these countries become attractive again and provide a bridge over unfavourable account situations. Governments in these regions tend to hibernate on reforms when the economies are doing well. Therefore, it is often lucrative for companies to enter these economies when their chips are down.
Indian uncertainties become surprising opportunities
The Indian economy was relatively immune to the economic shocks that shook Asia in 1998 and Europe and America in 2008. Its huge consumption-based economy, a parallel unofficial economy and a real estate boom served it well. Now with the other economies recovering, international investments are flowing out. The government is finding it difficult to balance its books due to a current account deficit of around 5%. Even though the national government has shifted into an emergency mode, in our opinion, despite best efforts the growth rate would remain around 5% until 2015. This triggers a new, exciting openness.
Steps to encourage investments
The Indian finance minister has opened up sectors like retail, insurance, aviation and defence. Additionally, the speculation over retrospective taxation etc. is passé. Officials now are talking more realistically as if they have had a crash landing.
On the bright side
These changes make India very attractive. This may be just the right time to enter while the currency is at an all-time low. Rather than waiting for the economy to recover and then face bureaucratic opposition, why not take advantage of the red carpet that is being rolled out? Depending on the sector, we believe this could be a unique moment. With valuations at 2010 levels and a currency with 30% depreciation, while others see anxiety, we recognize opportunity.