Global investor confidence in the global economy increased during 2013. However, most of this increase was due to heightened confidence in the Asian markets, with confidence levels in both Europe and Latin America declining during the period, according to the 2013 Global Venture Capital Confidence Survey from Deloitte in India and the National Venture Capital Association.
Indian investors remain more optimistic than their peer group about the global economy’s prospects, with a mean score that is 70 basis points higher than the median. In absolute terms, however, the country remains fairly neutral about the global scenario. This suggests that Indian investors are more bullish about a growth story driven by domestic consumption.
A limiting factor for global and domestic investors’ confidence levels in India, however, is the domestic government’s ability to enact supportive policies for VC/GE/PE investment, and while this could be a cause for alarm, it could also be a function of incumbency setting in.
Indian financial investors’ confidence in the home economy ranks 6th among the 13 countries surveyed with a mean score of 3.42 (out of 5).
Consequently, India’s outlook is perceived as being more promising than other BRC peers, and this outlook is only outshone by strong manufacturing hubs such as the US and Germany and Japan which in its turn is also undergoing major policy shifts under the new government.
The Indian and US investors’ levels of intent to invest in India is 3.72 and 2.8, respectively. When compared to Chinese and US investors’ levels of 3.63 and 3.05, respectively, for their investments in China, it can be concluded that Indian investors’ confidence in the economy vis-à-vis China is not getting appropriately translated into actual investment by either the domestic or the foreign investors.
“A home bias is very evident across the world, with investors remaining more confident in their own economies than in foreign economies. Interestingly, however, the inverse scenario holds true with respect to capital markets, with foreign capital markets being favoured over domestic ones. India has displayed a diversion from this global trend in recent years, and seems to be equally confident in both domestic and global markets” said Rajiv Sundar, Senior Director, Deloitte in India.
In terms of raising funds, the industry is lukewarm in its estimate of exciting domestic investors in India whereas it is moderately optimistic about raising funds from LPs outside the country for India specific investments. Given the level of confidence that Indian VC/GE/PE segment have in the economy and the intent to invest in Indian firms, the same enthusiasm has not been translated into enticing the investors, especially locally but also globally.
"India continues to be a most favored destination amongst the emerging economies for Private Equity and Venture Capital allocations by the Institutional Investors. Macros are a concern but Private Equity and Venture Capital takes a long term view and a micro perspective on investments. India still offers great investment opportunities," said Mahendra Swarup, President of IVCA.
Within the Technology sector, Mobility, Cloud and New Media/Social Networking segments attracted significant, albeit expected, enthusiasm from Indian investors.
Market evidence suggests that with respect to Mobility, growth will be derived more from application development than from actual mobile communications powered by telecommunication companies.
Growth in the Cloud and New Media/Social Networking segments, on the other hand, is expected to come from increased investment by SMBs and a stronger support from the VC investment community, respectively.
If the above trends are compared with China, a divergence especially with regard to specific segments such as Biopharma, Clean Energy and Social Media is apparent, that is, while these segments are favourably looked upon in China, Indian investors have been quite pessimistic about them.
Allied industries such as Consumer Business and Healthcare & Life Sciences (IT & Services) also exhibited consistently high levels of confidence in 2012 and 2013, suggesting that growth in these sectors will continue for the foreseeable future. However, a general pattern amongst investors both globally and domestically seems to indicate increased pessimism towards Clean Tech, Semiconductors and Telecommunications.
"Overall it’s a mixed bag for India where the VC/GE/PE firms remain optimistic about the fundamental growth prospects of Indian economy and their commitment towards further investment here, but then at the same time quite circumspect about whether this enthusiasm is also shared by the LPs across the world," says Deloitte.