News: More Gulf investors look to play in Indian stock markets

(TP 02/04/2006) Mumbai - It’s not just the non-resident Indians, but also Gulf nationals who are seriously looking at the Indian stock markets which continue to amaze the world.

Strong liquidity and hiccupping local stock indices have encouraged investors in the oil-rich Gulf countries to look beyond their shores and, as far as equity is concerned, India seems the best bet for now.

Some market experts put the expected inflow of Gulf portfolio money at a conservative $1-2bn this year, but added that it could be even more as other investment options are drying up. Gulf money is finding its way into India increasingly through the private equity route.

India’s benchmark 30-share Sensex has settled atop the 11,000 point mark rather comfortably, signifying an unprecedented faith reposed by Indian and foreign investors in the fundamental strength of the country’s economy. Stocks are up nearly 17per cent so far this year after a gain of 42 per cent in 2005.

According to dealers the latest gains appeared to have been sparked by news the government plans to introduce full rupee convertibility, a major liberalisation which should attract much needed foreign investment to keep the country booming.

We shall look at the prospects of full convertibility in a subsequent edition of this column.

For the moment, however, analysts say foreign investor interest was buoyant after India’s central bank on Monday appointed an expert panel to review the currency system with the aim of making the rupee fully convertible on the capital account. That would free up capital transfers, which are still controlled under rules dating from India’s days as a closely regulated and planned economy, hostile to foreign investment.

Today, foreign investors are major buyers of Indian stocks, investing a record $10.7bn in 2005 and almost $3.5bn more so far this year, confident the economy will grow by at least eight per cent in fiscal 2006.

On the other hand, Gulf stock markets, which had made unprecedented gains over the past five years, are witnessing a “healthy” correction needed to take the steam off the overvalued markets. All five major bourses in the Gulf have now dipped below their 2005 closing, shedding some $200bn of their capitalisation since the start of the year, and pushing investors in some countries to protest.

This correction in the Gulf markets has come at a time when liquidity is very high on the back of the sustained rise in oil prices. A multinational bank issued a report recently saying that Gulf States have generated over $300bn in excess cash over the past four years’ oil-boom and are likely to generate a similar amount this year.

Big investors from this region are looking at private equity investments in India even as Indian companies are equally keen to offer shares to Gulf investors. Man Industries (India), for example, will be the first issuer from Asia to list a $50m global depository receipt (GDR) on the Dubai International Financial Exchange (DIFX). Dubai Bank, the investment banker for the deal, expects more such deals to happen soon.

Leading foreign funds have initiated talks to float India-specific funds in the Gulf region that adhere to Islamic or Shariah Law.

Already, the Bahrain-based TAIB Bank manages two funds — Everest Fund (minimum subscription of $10,000) and another Mauritius-registered fund — worth a total of Rs1,0bn investments in the Indian bourses.

Now, ‘India Profit Sharing Fund’, another open-ended Shariah compliant fund with an exclusive focus on India is on. The fund, which will be managed by a domestic fund house, is targeted at the oil-rich HNIs in the Gulf. The minimum subscription amount for this fund is $200,000. Similarly, during 2005-end, Al Madina, a Shariah-compliant investment firm backed by Gulf Bank, raised $171m for investments in the Indian stock markets.

As Islamic law stipulates, the funds will not invest in companies that sell pork, tobacco or alcohol, or in casinos and most media and entertainment businesses.

Last week, Mumbai-based Sabre Capital announced the setting up of a $250m fund in partnership with Dubai-based Abraaj Capital. The joint venture will buy stocks in Indian companies that have strong growth prospects across different sectors including retail, BPO, IT, auto ancillaries, life sciences, leisure and travel and healthcare.

Abraaj Capital has an extremely distinguished Board of Directors which includes H E Sheikh Nawaf bin Nasser bin Khalid Al Thani from Qatar.