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| Feature: Eastern Promise |
A Passage to India
Saritha Rai
09/01/2005
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Local Flavor
As in China, a U.S. investor hoping to gain access to India
will need to turn to fund managers or financial advisors who go there often and
hear directly about investment opportunities and establish relationships.
Indeed, the local stock market is not open to foreigners; those wishing to trade
must prove Indian ancestry dating back to a great-grandparent.
Dushyant
Pandit, managing director of Tocqueville Asset Management in New York, is a
wealth advisor with an Indian investor license who can move private client money
into the Indian stock market. He recommends that investors, whether in private
or public equity, look only to industries in which India has a proven
competitive advantage. “The banks,” he says, “are not the best in Asia.” A
better bet, according to Pandit, is the pharmaceutical industry, where India is
not only producing many drugs for the domestic and foreign markets at a low cost
but also increasingly becoming a source of innovation at manufacturing plants
that are approved by the U.S. FDA. He believes information technology also holds
long-term promise, as Indian engineers and scientists are increasingly finding
opportunities to start companies and develop new products on their home turf.
“IT outsourcing, despite the cry in the U.S., is sort of played out,” he says.
“Now the companies with technical knowledge are packing it into their own
software products.”
Pandit sees less promise in India’s domestic automobile
industry, despite a 41 percent earnings rise this past year at Tata Motors, a
separately listed division of India’s largest privately owned conglomerate, the
$14.25 billion Tata Group. Tata introduced its first India-designed car in 1997,
and now has a 16 percent share in the domestic car market. Still, says Pandit,
the quality of India’s automobiles “does not compare with Honda, Toyota or the
Korean carmakers.”
Foreign investors who want to take smaller or more liquid
exposures than those available via private equity or hedge funds might consider
buying stocks in some of the large-cap Indian multinationals listed overseas.
The offerings on foreign exchanges are fairly limited: There are only about two
dozen split between the NYSE and Nasdaq, including four hybrid companies such as
Cognizant and Kanbay, which were founded by Indians but incorporated in the
United States. There are also about a half dozen on the London Stock Exchange.
Plowing through the accounting and other paperwork required by the Securities
and Exchange Commission, ironically enough, often seems too onerous to Indian
companies, as is meeting U.S. governance requirements.
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