FinanceAsia recently caught up with Vivek Sharma, senior executive vice president & head international clients group at Nuvama Group.
Singapore-based Sharma (pictured below) is also part of FA’s editorial board and shared his views on the exciting Indian capital market landscape, which has recently seen two large firms, Ola Electrc Mobility and Brainbees Solutions successfully carry out initial public offerings (IPOs). Nuvama Group has also recently expanded in Dubai.
FA: Why are India's capital markets currently so exciting?
Sharma: This is an excellent space to be in because of the broader macroeconomic trends and structural changes that are driving growth. India's economy is coming of age, transitioning from the seventh largest economy toward becoming a $5 trillion economy. As India reaches this milestone, global investors will be compelled to allocate more resources to the country, similar to what happened with China.
In addition to this macroeconomic growth, there are significant structural changes that have made it easier for foreign investors to participate in the Indian market.
For example, the liquidity in the Indian stock market has greatly improved, making it more attractive. The market's constitution is well-diversified, with participation from foreign investors, domestic institutional investors, proprietary traders, and retail investors. The combination of easier access and the market's depth and liquidity is drawing in more foreign investors.
What's also fascinating is the evolution in the nature of international investors focusing on India. Over the last eight to 10 years, there's been a noticeable shift in the types of investors coming to India.
India has always been an important market, but it was primarily of interest to long-only managers. Traditionally, large institutions would make allocations to Indian equities as part of their broader investment strategy. However, in the last four to five years, we've seen the emergence of hedge funds and systematic funds becoming very active in the Indian market.
Today, if you speak to any of these players, they would likely rank India among their top two, if not the most important, markets in their portfolios. This shift underscores India's growing importance in the global financial landscape, particularly within the hedge fund and systematic trading spaces. The high frequency trading space in India is also experiencing a rapid growth.
FA: Can you please give you some India micro trends to focus on for those looking to enter the space?
Sharma: Historically, there has been a perception that India is a difficult market to enter, with lingering doubts about whether it's easy to repatriate or withdraw investments. These concerns are somewhat surprising. Over the years, India has consistently demonstrated that foreign investors can safely repatriate their investments without issues. The Indian government is highly sensitive to these concerns and ensures that foreign investors do not face difficulties with their funds.
Additionally, improvements have been made in the process and ease of obtaining the Foreign Institutional Investor (FII) license, which is required for investing in the Indian market. These changes have made it simpler for investors to navigate regulatory requirements and access the opportunities available in India. There was a time when obtaining the FII license could take six to nine months.
However, with firms like ours, we can now process institutional applications and have them go live within about 30 days. This includes everything from submitting the necessary documents to obtaining the FII license and preparing all required documentation. Much of the relevant information is publicly available. Investors can access details about FII regulations and established firms on government websites. Each year, India registers approximately 1,300 to 1,400 new FIIs, and this has been a consistent trend over the past five to seven years.
The guidelines and processes for foreign investors have become much easier to navigate. This streamlining is part of a broader trend reflecting the growth story of India. As an economy, India is experiencing remarkable growth.
Today, India boasts over 5,000 listed stocks on its exchanges, with around 400 to 500 of these having market capitalisations exceeding $1 billion. This extensive range provides ample opportunities for large asset managers to diversify and make informed investment decisions.
India's stock market is well-represented across various sectors, including technology, financials, industrials, consumer goods, and more. This broad-based representation ensures that you’re not overly concentrated in any single sector.
Additionally, India’s derivative market complements the equity space. For hedge funds or systematic trading strategies, having access to liquid single stock futures and options is valuable. These derivatives allow you to short positions or hedge exposures effectively.
India's index options market is one of the most liquid in the world. This liquidity, along with the growth of the market, is encouraging various types of investors, including hedge funds, to engage more actively in India.
FA: Can you give your views on the evolution of wealth management in India?
Sharma: Indian families are increasingly looking to diversify their wealth, which is one aspect of the growing trend.
The second part is the interest from global families who have not yet been able to participate meaningfully in the Indian market. If you talk to any global private bank or investment firm, you'll find that they often have limited or very basic India-linked offerings, typically simple long-only India products. However, the market offers so much more.
If you speak to an Indian firm like ours, you'll see that we have the largest alternative investment focus in the country. This allows us to offer access to a wide range of specialised products, such as special situation funds, which include stressed assets, performing assets that fit between real estate (both commercial and residential), and hedge funds linked to Indian markets.
The direction of move is to have a conduit for global families to access these unique Indian opportunities through a trusted and well-established partner like us. We aim to bridge the gap for those who want to tap into the full potential of the Indian market beyond the limited options currently available to them.
FA: How is the fixed income market in India?
Sharma: Historically, fixed income investments in India have been a smaller segment of the market. However, this is changing. JP Morgan recently announced the inclusion of Indian government bonds to the GBI-EM (Global Bond Index-Emerging Markets) family of indices. Additionally, Indian companies are increasingly seeking to raise capital, which is likely to further attract investment in the fixed income sector.
The Indian bond market still lags behind equities in terms of development, but structural changes are anticipated in the coming years.
FA: Can you give your views on the growth of private credit in India?
Sharma: The private credit space in India has experienced significant growth over the past five years. This expansion is driven by the ability of asset managers to offer flexible, patient capital — typically over five to six years — which is attractive to companies that may not have other options for financing, such as traditional banks or non-bank financial companies (NBFCs). These companies are often looking for long-term, stable capital, and asset managers can provide this, leading to returns of around 13%.
There is strong investor appetite for this asset class, and it has become a key focus for both large Indian and global asset managers. For example, large global players have now included India in their credit allocations, and there is significant interest in special situations, with reports indicating around $1.5 billion allocated to this segment.
FA: Are valuations too high?
Sharma: In the Indian market, despite its historically high valuations due to its growth potential, earnings rates also reflect significant growth, with companies across various sectors experiencing earnings growth rates higher than their global peers. This growth justifies the premium valuation multiples observed in the market.
Over time, allocations and preferences within the market are evolving. For instance, if the current government had secured a stronger majority in the past, cyclical sectors might have seen further boosts. However, current perspectives suggest a more calibrated approach, with a shift towards consumer goods and consumption-oriented sectors potentially offering better opportunities.
Despite these shifts, India's macroeconomic outlook remains positive, with projected growth rates of around 6-7%. The financial health of Indian companies is also notably strong, with balance sheets showing healthier metrics compared to historical standards. For instance, India's corporate debt-to-GDP ratio and other financial metrics compare favourably against those of developed markets, reflecting lower levels of debt and a more resilient financial structure.
FA: How has the recent election impacted views on India?
Sharma: The investment landscape in India will likely see some adjustments in allocations as the current government unveils its policies. Such developments may influence short-term allocation strategies among asset managers and foreign investors. However, despite these adjustments, the broader interest in India from foreign investors is expected to remain robust.
India's large market continues to present diverse opportunities across various asset classes, which is unlikely to diminish significantly. While there may be short-term ebbs and flows, India’s steady growth trajectory provides a compelling case for investment.
FA: What are you views on India’s Gujarat International Finance Tec (GIFT) City?
Sharma: GIFT City functions as a tax-free or offshore zone within India, providing a unique regulatory environment designed to attract global and domestic asset managers. Over the past few years, there have been numerous regulatory and policy adjustments aimed at enhancing the appeal and functionality of GIFT City. These modifications are intended to offer greater comfort and operational ease to asset managers, facilitating their establishment and operations within this specialised financial zone.
This trend has already begun with Indian managers who previously set-up global funds or established funds overseas to raise and deploy capital. Now, there is a shift as Indian managers are increasingly favoring GIFT City. The advantages are clear: it operates in the same time zone, provides access to a skilled talent pool, and offers flexibility with its tax-free zone status. The benefits available in financial hubs like Singapore are similarly accessible in GIFT City.
As a result, Indian managers are becoming early adopters of this trend. In parallel, the ecosystem around GIFT City is developing rapidly. Global and local banks have established significant branches in this tax-free zone, and the presence of tax firms and law firms is growing. This burgeoning infrastructure is further supporting the shift and attracting more interest from global funds looking to enter the Indian market.
