Market watch: Why foreign investors continue to keep faith in India

Ten days ago, Per Borgvall, President & CEO of Gunnebo Security Group, a worldwide leader in security products, services and solutions, was in Mumbai for its India board meeting. The Swedish company decided to invest an additional Euro 3 million this year, taking the group's total investment in India to Euro 11 million. In the last three years, the company has already invested Euro 8 million to set up the world's largest manufacturing plant in Halol in Gujarat for manufacturing of safes and lockers.

About 75 per cent of Gunnebo India's revenue come from its banking security business such as Chubbsafes and Steelage safes and lockers. The rest comes from its entrance control system, global services, fire extinguishers under the Minimax brand name and global services. The company also plans to provide 30,000 to 40,000 ATM safes across the banking space in India in 2014. India accounts for 7-8 per cent of Gunnebo's overall global revenue, in third place after France (12 per cent) and the US (8-9 per cent) in the list of the group's top revenue earners. In 2013, the Indian operations posted revenues of Rs 372 crore.

So, why is Borgvall investing in India when even most Indian entrepreneurs are on the fence waiting for the results of the general election before committing any investment?

"We are growing three times more than the market," says Borgvall, who is making India its Asia-Pacific R&D hub. "We want to make India the export hub, but local demand is huge that we aren't able to export from India," he says. "The worst that could happen to India is it may slowdown if there isn't any clear winner from the forthcoming elections. But that doesn't change the long-term course of India and its growth. India is a huge market for us and we are in for the long haul as we see huge growth potential in the coming three to five years."

India's huge market is the main reason why foreign investors still have their eyes on India. The country offers significantly higher growth than the world, pushing FII ownership in equities up from 12 per cent in 2001 to 21 per cent by the end of 2013, the highest in the last 13 years.

Players like Gunnebo are optimistic about India because of the country's favourable demographics, rising affordability, low penetration of consumer goods and rich natural resources which are key drivers of growth.

Foreign investors know India could go through a period of uncertainty, but they are confident of the country's potential once the problems have been ironed out following the election.

It is time for investors to build in the same faith in Indian equities and India. An election can certainly be a game changer for India as it will be the key catalyst to improve sentiment and push the equity market higher. In the past, election results have not changed the course of the Indian market which has always remained positive.

Development is the key mantra for anyone that comes to power at the centre.  Therefore, not much of a downfall is expected from here on unless the new government doesn't focus on reforms and growth.

Meanwhile, with the Sensex at 21,000, it would be in the interest of investors to slowly build a portfolio by focusing on stocks of frontline companies that do not have high debt on their balance sheet and have the pricing power to pass on the cost to customers even in times of a slowdown.

Until the election, the Indian market will react mainly on global cues, currency and FII flows. In the coming week, the trend in the Indian market will be dictated by domestic and global economic data. Auto and cements stocks will remain in focus following the release of the monthly auto and cement data.

Similarly, the market will keep an eye on the HSBC India Manufacturing PMI and HSBC India Services PMI data to be released on Monday and Wednesday. The market expects the manufacturing PMI for February to improve slightly to 51.7 from 51.4 in January.

In global markets, on Thursday, March 6, the European Central Bank (ECB) will decide on the Eurozone interest rate. Similarly, the Bank of England will meet to decide on the interest rate in UK while on Friday, March 7, the US will announce its unemployment rate and non-farm payrolls for February. This will be followed by the FOMC meeting later in the month on March 18 and 19.