|
|
 |
|
| Feature: Eastern Promise |
A Passage to India
Saritha Rai
09/01/2005
|
“Investors have an opportunity to really capitalize on India’s
evolution from an export-based outsourcing boom to a more indigenous growth
story in infrastructure and consumer products,” says Kammy Moalemzadeh, a
managing partner in the New York–based investment firm Arcadia Investment
Partners, who has put several million of his and his investors’ dollars into
private equity in India since 1999. As in China, private equity has become the
most popular route for wealthy investors who are willing to shoulder the
substantial risks of betting on unproven companies in return for the possibility
of doubling their money in three to 10 years. Whether the private equity
sector’s steroidal performances of recent years can continue is debatable,
however. “India has seen a dramatic run-up in the last five years when it was
discovered by foreign capital; that happens only once,” argues Ashish Dhawan, a
senior managing director of ChrysCapital Investment Advisors, a private equity
firm with offices in New Delhi and Palo Alto, Calif. The firm’s best picks have
returned as much as 500 percent.
The Singh government is trying to attract money to modernize a country in
which so many vast
stretches are trapped in the developing
world. | ChrysCapital has invested $450 million via
two funds that targeted back-office outsourcing, financial services and consumer
services companies in the early growth phase. The firm has been careful about
picking companies in these rapidly ascending sectors that boast excellent
management teams. Dhawan considers his holding in a leading training company
that will return only 10 to 12 percent a disappointment, and it does have an
aura of failure when held up against an investment in a back-office firm called
Spectramind that returned six times its original investment in just two and a
half years.
Dhawan takes a conservative view of his firm’s recent success,
attributing most of it to the overall investment climate. “While macroeconomic
changes began in the early 1990s,” he says, “microeconomic changes, such as the
dramatic growth in entrepreneurs’ aspirations, a global mindset and improved
corporate governance, make India extremely attractive.” ChrysCapital is not
currently raising capital, but might launch a round near the end of 2005.
Indian hedge funds are generally more appropriate for investors seeking less
volatility than those who can bear the risks of private equity. But, as in
China, India lacks a sophisticated derivatives market, so investors must trust
their capital to fund managers who seek to take directional bets in a market
that trades heavily on rumors and relationships and is light on regulation, with
little opportunity to hedge. Those with nimble, highly focused strategies have
done well. Jon Thorn, managing director of the India Capital Fund, a
London-based hedge fund with $150 million in assets, has seen some triple-digit
returns since January from investments in small-cap manufacturing companies. He
recently announced that the fund will reduce its holdings in export-driven
sectors such as software and pharmaceuticals, which he sees as vulnerable to a
U.S. slowdown, and focus on domestic consumption-driven sectors.
|
|
|
|
|
|
|
