We have been putting up about billion dollars a year to work in India at an average for the last five years and we are hoping to increase that base, says Ravi Lambah, Senior Managing Director, Temasek India. Excepts from interview with Avanne Dubash of ETNOW.
Can you tell us how the journey for Temasek India has been and how has the portfolio value grown?
We have been here for the last 15 years. This is our 15th year in India. We have reached a record high in our portfolio in India with that $11 billion. It represents 5% of our global portfolio. In Temasek we ended March 2019 with a portfolio of $313 billion. The India portfolio has been quite focussed on playing the consumption theme in the country as well as looking at beneficiaries of the consumption theme. We have been invested in financial services for a long time — in the banks, newer sectors like insurance that have given us the opportunity for capital work. We have been in technology, we have been in fast moving consumer goods, in retail, in healthcare and pharmacy as well. From that perspective the scorecard has been good. We have been putting up about billion dollars a year to work in India at an average for the last five years and we are hoping that we will increase that base.
Given that things are looking a tad fragile across the world, do you think that 5% could grow for the India portfolio?
Well the world is certainly in a bit of an uncertain volatile space. We do see the US-China trade relations including Brexit uncertainties and some fragmentation in the political scenario in Europe all of this contributing to what we would call some uncertainties for the world which will have an impact as we look at our investments across globally not just India. But in India, we are focussed on growing the portfolio, we want to do more. If I look back, in last five years, we have put up about a billion dollars a year every year into India and we would like to increase that pace of investment.
The Modi government is back with a higher mandate and the reforms process has been on full swing. What are some of the key reforms that you are hoping for?
We saw reforms in the first five years. We saw some positive moves in the bankruptcy code, we saw some positive steps towards resolving the NPLs etc. as a result of the bankruptcy code. Then of course we saw GST reforms kick in and we would expect the reforms to continue. Not just new reforms, but also execution of reforms that they initiated. As we look at the forward trajectory of the country, we think growth will be driven by these reforms and we remain positive.
The maiden budget of Nirmala Sitharaman focussed a lot on investment-led reforms, clearing up the mess within the NBFC space that has thrown open a lot of opportunities. Would you be looking at any?
As I said before, we are very focussed on finding more opportunities to grow our portfolio in India. This is not necessarily a result of short-term developments via long term. We at growing our portfolio over the long term. We look at putting capital in the companies that generate value over the long term and as a consequence of the budget which we think is fiscally prudent, it is driven towards long term orientation growth of the economy. We are focussed on where we have always been, which is around consumption and infrastructure themes that help us increase our exposure to the country.
You also had the reform that announced that the promoter shareholding in listed companies cannot exceed 65%. This means that in a lot of marquee names, there is going to be a lot of opportunity. I know you said you are not looking short term, but what kind of an opportunity do you think it presents players like a Temasek?
The reforms or steps such as these that may throw out opportunities have been happening not this year they have been happening for a long time and every geography you see, policy changes, regulatory changes throw up opportunities and from our perspective, we go back and look at what where we want to put capital to work.
If those industries or those companies are where we want to put capital to work, then we will evaluate them for their own merits on the case basis. The fact that there is a development that throws up opportunities does not really mean that we change the way we look at how we want to deploy capital.
But would you be takers in any of them as of now?
We will look at every one of them and it is not fair for me to comment on any particular ones. But yes, we will look at each of them on a case basis.
Is insurance a sunrise sector? You have investments over there. Are you looking at upping stake in SBI General?
So it is unfair for me to comment on any particular investment opportunity that we are looking at but all I can tell you is that we see the insurance sector — both life and general — as a very long runway. It has just started from the perspective of an investment and if you look at the IBF Forecast, they talk about insurance being a $280 billion market in the next five years.
We will continue to look at opportunities here both in life and general. We already have stakes in some companies like SBI Life as you mentioned and we are looking to increase our exposure across the sector.
What about the traditional banking space? Do you think that private banks will continue to outperform the PSBs which are struggling with recapitalisation, NPA stress?
Actually banking sector is a space that we really like. We have been invested in the banking sector since we started in India which was 15 years ago. So this is our 15th year operating in India and banks have always been a very key part of our portfolio then and continue to be. We see banks as a proxy for growth of the economy as a whole and we have invested in the private banks. We have invested in the PSB banks as well in the past. Ultimately for us, banks is a key part of our portfolio here. Whether we increase or decrease really depends on how we see valuations playing out through our intrinsic value test.
You spoke of infrastructure. Government is going to focus on it quite a bit. Do you prefer to ride this sector via themes like say steel or cement?
Infrastructure as an ingredient for the economy in India is actually absolutely key and we have been playing exposure to the infrastructure sector in a diverse manner, in diverse ways. For example, we talked about our investment last year in Adani Port. We invested in the NIIF that the government initiated last year, the infrastructure fund. Then we have a very large portfolio company ecosystem in the country like Keppel, Sembcorp which are in the power sector and the port sector. We have been exposed in them through.
We have also got Ascendas-Singbridge which is one of our portfolio which is CapitaLand Ascendas Ascendas-Singbridge now. They have been through merger recently in Singapore. We have created a JV with them in India where we have committed to invest capital with them again in the commercial space and logistics and warehousing as well. We find infrastructure is the key part of the economy. We see key to driving growth in the economy. We like the fact there is lot of focus on it both from the government and the private sector and as far as we are concerned we also are tracking that very closely.
What about reports of Emami Cement?
It is unfair for me to comment on specific situations. But yes I think broadly we would like to stay focussed on this space.
Indias telecom sector has gone through a fairly rough patch but there are reports that now things will stabilise. Most of the big companies are looking at raising funds in order to beef up their balance sheet. You have exposure to the sector as well. Can you tell us what is your outlook on pricing stability, pricing power within the space?
The Indian telecom sector again is one we have been exposed to since the very long time. In the late 2000s, we started getting exposure here. The sector went through quite a difficult ride where it was overcrowded. There were too many players and that process the market has now consolidated back into a few players.
Structurally, the sector is in a much more positive space than it was in the past decade or so. Going forward, we have to see how execution of the telecom sector players on the business plans will come out. India will see 500 million more internet users over the next five years. There is tremendous amount of growth coming in . Question really is how will they execute through their plans to increase value of the business and provide better connectivity through 5G which is going to be another game changer in the space?
Traditionally a lot of telecom sector focus has been on the B2C market serving consumers like you and me but integral part of 5G will be B2B that is providing connectivity to industrial companies so they will have to reorient the way they think about it. But having said all of that, it opens up a whole a new market opportunity for telecos. We see the space as better space than before. Now it is all about execution going forward.
You touched upon consumption. We are seeing a slowdown within the space. Is the pain likely to continue and what is your outlook in terms of opportunities?
Yes, there has been a slowdown in the consumption space in the country and I think it is a matter of short term slowdown driven by certain factors that are contributing to it but long term again we feel that consumption is a space we want to play as a theme. We want to play we have been doing it forever as long as we have been here.
I will talk about a few things. For example, we defined consumption very broadly, consumption can be in healthcare, so we hav investments in healthcare; it can be technology we have investments in technology, it can be financial services, we have got investments in fintech; it can be in infrastructure so we have got investments. I think about consumption in longer term and because we are long term oriented and building our portfolio, there is no turning back, actually. So we are not fazed by short-term volatility and we are focussed on companies that can cater to the long-term theme of consumptioRead More – Source