Case for a new India bullishness is strong

Whatever happened to the India bulls? Rampant during the mid-2000s stock market boom, these Indian business optimists seem all but extinct. In their place, investors preach a gospel of weary caution, bruised by a decade of anaemic commercial performance.

This is hardly surprising. Corporate India remains subdued, even though confidence in India’s economy has perked up since its growth rate overtook China’s and other big emerging economies by staying above 7 per cent. Company earnings have been lacklustre for years. Equity markets go up, only to come back down again. Many old-style conglomerates, once a dominant force, are struggling with leverage. Bank balance sheets sag under bad loans.

Worse, lenders and politicians alike seem powerless to reclaim assets from delinquent, indebted tycoons, with the ostentatious brewer and airline mogul Vijay Mallya — who left India all of a sudden for London earlier this month — only the most egregious example.

Less controversial industrialists, meanwhile, are sitting on their hands. Private-sector investment has tanked. It is as if corporate India is suffering a collective collapse of nerve. Given the troubles of the past 10 years, this is understandable. But it also seems misplaced. In fact, the case for a new India bullishness is strong.

Start with the basics. India’s corporate sector is diversified. Compared with most emerging markets, it does not rely excessively on any single industry, or commodity. Compared with China, it has better-governed, more Western-style blue-chips, albeit clustered in sectors such as pharmaceuticals and consumer goods.

There is also a changing of the guard, as once-dominant family-owned business houses are eclipsed by new competition. Some of this comes from foreigners, but more important are aggressive first-generation entrepreneurs, such as billionaire banker Uday Kotak and pharmaceuticals tycoon Dilip Shanghvi.

India’s tech sector is especially compelling. Bangalore, the IT capital, has shed its image as a mere outsourcing centre. Now it hums with innovative start-ups. Global companies, from Shell to Goldman Sachs, are pouring funds into new facilities there, taking advantage of its strengths in research and new technology.

None of this is to underplay India’s challenges. A more muscular, export-focused manufacturing sector is clearly needed. Cleaning up the mess left by Mr Mallya and his ilk will take time. India’s problems of corruption are also far from behind it — especially at the state and local levels.

Still, the last decade of ruinous lending and borrowing is unlikely to be repeated. Prime Minister Narendra Modi also deserves credit for ending most of the larceny in New Delhi that so tarred the country’s reputation under its last government. One billionaire industrialist, speaking on condition of anonymity, puts it thus: “I no longer fear waking up to learn about a regulation which mysteriously damages my companies, but happens to help my competitors.”

Other sectors notorious for tawdry practices, such as liquor or natural resources, are being cleaned up as well.

This has global implications. For foreign investors, India remains a tricky market, as the regulatory wrangles of Cairn Energy and Vodafone show. Now, India’s red tape should get at least a little less onerous, as Mr Modi tries to curb his country’s worst bureaucratic excesses.

Indian companies have good prospects abroad, too. In the mid-2000s, the likes of Tata went global in a big rush, snapping up assets in Western economies, from Jaguar Land Rover to Tetley Tea.

But, over the next few years, a new moment of Indian international expansion is likely, albeit one in which companies will focus their efforts not on the West, but in low-cost economies in Asia and Africa, where business conditions often mirror those at home. Some economists argue the “Indo-African” rim will, over time, supplant its Pacific equivalent at the heart of global trade growth, with Indian companies at the fore.

All this is no cause for hubris. Much greater reforming zeal is needed from Mr Modi if India is to succeed. Tycoons must also be persuaded not to slip back into the comfortable crony capitalism of old. But if this is avoided, there are good reasons to be sanguine about Asia’s second-largest emerging economy. Those India bulls may look extinct — but do not be surprised if they reappear soon enough. THE FINANCIAL TIMES

ABOUT THE AUTHOR:

James Crabtree is The Financial Times’ Mumbai correspondent.