Technology has made it easy for our emerging markets team to stay in contact from nearly every corner of the globe, but electronic communications can’t replace human interaction through a face-to-face exchange of ideas. Twice a year, our 50+ analysts gather together in a single location to share opinions on companies, discuss global events, and conduct a peer review and evaluation. India was the place chosen for the Templeton Emerging Markets Group’s semi-annual meeting in March. I’ve invited my colleague, Chetan Sehgal, to pen his thoughts on India and why we chose it as the location for our most recent gathering.
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Templeton Emerging Markets Group has held its emerging markets conferences in many locations, but interestingly, India was in some ways the last bastion, as it had not been the site of one of those meetings until now. We thought it was a particularly appropriate time to host this event in India, as the country is taking a lot of bold initiatives to further growth potential at a time when the overall global macro environment is quite challenging. There is no substitute to visiting a country to understand what is happening on the ground and we felt our analysts would come away with a better understanding of the challenges and opportunities India faces by seeing it with their own eyes and talking through observations as a group.
When I joined Templeton in 1995, the Indian market was quite different than it is today. Back then, it was an era of physical share certificates and annual reporting of accounting results. Faxes were still used to place orders, and companies spent little time trying to attract investors. Corporate governance was still in its infancy.
Since then, corporate governance has come a long way. The financial industry at large has generally recognized India as a model of good corporate governance in the emerging markets realm, and there has been a marked increase in transparency by many listed companies. There is currently a movement to raise the voice of minority shareholders, and to that end, an electronic voting system was launched. However, we think there is much more to be done in terms of minority shareholder protection, especially from related-party transactions.
India has had a vibrant stock market with a vast number of listed companies, and a culture of entrepreneurship and investment. At Templeton, we view ourselves as vested participants in India’s growth and success, as we seek opportunities in many Indian companies and sectors.
Challenges and Opportunities
India has certainly faced its share of recent economic challenges, plagued by the unsavoury combination of slowing growth and rising inflation in 2012 that effectively tied the hands of the central bank here. And, its stock market has been quite volatile in recent months. One urgent need is greater clarification on India title rights and taxation system. There is too much litigation, which has undermined investor confidence.
In a truly globalized world, there really can be no decoupling from global events. We believe the key to unlocking India’s potential prosperity lies in increasing employment, productivity and innovation. The task is huge, but there’s reason for optimism. The government has now started taking steps to revive growth through more effective policy action. Recently, P Chidambaram, India’s finance minister, vowed to rein in the country’s current account deficit while simultaneously increasing spending on social welfare programs. Another stated priority is to make the climate friendlier to foreign investors.
India clearly has some daunting tasks ahead, given that energy prices are at historically elevated levels and the global economy is generally unsupportive. It seems that the country ultimately has to find solutions from within. However, we have seen many Indian entrepreneurs succeed against all odds, and if compounded, that spirit could help drive business in India.
India remains a country of paradoxes and a land of opportunities. In our view, the healthy discussion and debate now taking place within this young, democratic, nation should ultimately result in higher potential for growth.