9 mins read . 27 Jul 2023
Indian markets are exciting and the best example of exciting times are the volume and colour of FPI flows. In the months of May and June, the FPIs have infused $11 billion into Indian equities. In the first fortnight of July 2023, FPIs infused another $3.9 billion into Indian equities taking their total infusion to $15 billion in 75 days. Big global funds are getting interested in the India story and that is hardly surprising. After all, with the problems in China and most global companies following the China Plus One strategy, the focus is back on India. The focus is not just as a portfolio investment destination but also as key link in the global value and supply chain. It is in this context that the latest story of Temasek looking to increase its investments in India assumes significance.
Temasek Holdings needs no introduction to global investors and fund managers. It is not just a formidable name in global investments but also one of the most sought after long-only sovereign fund owned by the Government of Singapore. Temasek has a total portfolio of $287 billion of which nearly $17 billion, or 6%, is invested in India. That is a reasonable share especially considering that India had a share of just about 3% 5 years ago. But this is just the beginning. Now Temasek has decided to scale up its India equity investments by another $10 billion in the next 3 years and may even take its India share in the global equity portfolio up to 10%. After all, in FY23 when the global portfolio of Temasek had given negative returns, it was the India portfolio that had held its nose up with positive returns. Temasek wants to up the ante when on its India strategy and is betting on a combination of stable government policy, attractive demographics, and high-quality entrepreneurs.
Temasek’s India portfolio is handled by Vishesh Shrivastava and Mohit Bhandari; both of whom are extremely bullish on the India story. Healthtech is already their priority in India and that is evident from their recent $2 billion investment in Manipal Hospitals. They are also active in digital technologies Zomato and Policybazaar; both of which had a less than promising listing but have picked up in the last few months. The other big themes that Temasek is looking at leveraging in India are Energy transition and decarbonisation. They are on the radar from a longer term perspective. This must be seen in the perspective of Temasek reporting a loss of $6 billion in FY23 against $8 billion profit in FY22. However, even in FY23, India portfolio had delivered a profitable performance.
Why are the Temasek big bosses so positive about India? There are several macro and micro reasons. For instance, Temasek is heavily betting on the spillover positive effects as the per capital income of Indians doubles from the range of $2,000-$2,500 to the range of $5,000-$5,500 in next few years. The icing on the cake is the relatively young population in India, which makes the demographic dividends a lot more attractive. The second factor that Temasek is betting on is stability of macro policy. They are betting big on the positive outcomes of GST as well as the multiplier effects of PLI and other production incentives. Above all, Temasek believes that the quality of entrepreneurs and management in India is way above what it gets to see in other countries. There is enterprise and there is also management bandwidth to back it up.
Temasek leaders believe that India has managed the digital rationalization and the capital drought quite well. For instance, in the aftermath of the pandemic, there was an abundance of capital and interest rates were very low. This led to funding supply exceeding demand and led to a boom in digital lending; often at very inflated and unsustainable valuations. Today, interest rates are higher and investors are less willing to bet on perpetual loss making ideas. They want profits, or at least, the visibility of profits with tangible progress on cost rationalization. India has handled the transition quite well.
One of the lessons Indian companies learnt from 2021 was that companies must be able to narrate a story that is either close to profitability or has a clear path to profitability. Also, communication to the capital markets must be more meaningful. Temasek also feels that many investment bankers may choose to wait for the outcome of the elections next year, but that may not be too critical if the conditions are right in the market. However, Temasek is quick to underscore that their approach to investing (whether in secondary markets or in start-ups) would remain bottom-up. Some of the attributes that Temasek will look for in any investment are large addressable markets, management quality, governance standards, clear path to profitability, demonstrated ability to engage and retain customers etc.
Temasek has a presence in a plethora of listed Indian companies including Larsen & Toubro, Adani Ports, Devyani International and Maruti Suzuki. However, Temasek has given insights into its tome for selecting and investing in companies predicated on 4 key parameters.