The global financial meltdown and how it will impact IndiaHamilton E James has been the president & chief operating officer (COO) of global private equity firm Blackstone since 2002. Earlier, Mr James was chairman of global investment banking and private equity business at Credit Suisse First Boston and a member of its executive board. Mr James, an alumni of Harvard Business School, is a frequent visitor to India for the past one decade. He says the India growth story will continue, albeit at a slower pace.
In an exclusive interview with Kausik Datta & Dev Chatterjee, of The Economic Times Mr James talks about the global financial meltdown and how it will impact India. Excerpts.
What is your take on the current global financial meltdown?
It is frightening. I was in New York two weeks ago and it is different out there. The risk of the failure of the whole system is very, very real. The US alone is bailing out its financial institutions for well over $1 trillion. Plus, the Europeans are shelling out another $1 trillion in bailouts. And it is still not clear whether it is enough. There are some countries where the liabilities of their financial institutions are now more than the assets of these countries. For example, in Iceland, banks have more liabilities than the country’s assets.
To what extent this financial crisis may impact India?
I don’t know how we can measure its impact on India. But it has obviously impacted the Indian currency. It makes some Indian businesses competitive, but most of the businesses are badly hit. It has also impacted the stock market, as investors are taking out money to invest in low-risk markets. A lot of wealth of any economy in emerging markets comes from real estate. When you are developing a real estate project, you have to start two or three years in advance.
As companies will not be taking up those space, a lot of wealth is lost in the way. What can happen now is a real estate bust, as real estate prices will start coming down sharply. And that affects psychology, as corporates will start cutting down on expenditure and consumers will stop spending. India is quite healthy and it has already taken steps to see that its financial system is stable, but all these other problems will start seeping into the economy and start affecting the psychology of the people. But we are a big bull on India. We think, India will continue to grow, but not at the pace earlier.
Is it the right time to scale up your investment activities in India, as valuations are now down to more realistic levels?
Yes, valuations in India are down by almost two-thirds. Besides, many companies, which wanted to go public earlier can’t do that, as the stock market is down and many companies will have a hard time borrowing. So, this is a good opportunity for private equity (PE) companies like us for investments.
What growth rate you think is achievable?
It will be certainly challenging. I think, India should do 4-6% which is not bad at all. But when you are used to do 7-8%, it feels a lot worse than what it is.
What kind of fund you have for India?
We have a global fund of $20 billion and we invest across the world with that fund. We started in India three years ago with an investment of $1-billion, spread over five years. We have already surpassed that investment by twice that much. The next six months give us a good investment window. But there are concerns, as general elections are coming up. India has some geo-political issues with Pakistan. I think, India is on track of good economic growth with a burgeoning middle class. We are here for long term.
Blackstone is quite selective about investing in companies. Still, some of its investments in India have not done so well. What do you think has gone wrong?
We are in a risk business and it is a difficult business. If this was easy, everyone would have done it. We have portfolio of companies which are performing very well and we will make good money in all of them. So, I am pleased with what we have done so far. We had made investments in a media company in which political issues were involved and it had nothing to do with Blackstone. Having said that, we are still looking for investments in the media segment. We have gained knowledge from those investments. In the textile business, Gokaldas Exports is doing quite well and it is ahead of target.
Which sectors are you looking at?
In the real estate sector, a huge amount of supply is now coming in the market and inventories will now go up. It will be hard for developers to get money. Prices in real estate will fall more before they become attractive to us. Media is another sector which we like, especially the local language newspapers which are growing. We are also looking at infrastructure sectors like ports, nuclear plants, healthcare. The companies providing affordable and high-quality healthcare could be a good area for investment. We are looking at a number of energy related deals to help India to become energy independent. That could be power, oil and gas, drilling, transportation. All parts of energy chain are quite interesting for us.
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