Investment in India

Emerging Investment trends in Indian Healthcare Sector

The Indian healthcare industry is expected to reach US$ 79 billion in 2012 and US$ 280 billion by 2020, on the back of increasing demand for specialised and quality healthcare facilities.

Further, the hospital services market, which represents one of the most important segments of the Indian healthcare industry, is expected to be worth US$ 81.2 billion by 2015.

Meanwhile, the Indian pharmaceutical market is expected to grow at a compound annual growth rate (CAGR) of 15.3 per cent during 2011-12 to 2013-14, as per Barclays Capital Equity Research report on India Healthcare & Pharmaceuticals.

India is the most competitive destination with advantages of lower cost and sophisticated treatments, highlighted the RNCOS report titled ‘Indian Healthcare - New Avenues for Growth’. The report further elaborates that several key trends are backing the growth of healthcare in India.

Emerging trends in Indian healthcare industry

The healthcare sector is one sector that has witnessed tremendous entrepreneurial activity over the last few decades across the entire value chain. The emerging areas (diagnostics, pharma retail, biotechnology and life sciences) within healthcare are playing a significant role in attracting global players to India to set-up a number of allied industries in partnership with domestic players. This is also providing Indian entrepreneurs considerable opportunities to invest in healthcare. The way the current financial climate is shaping-up, an entrepreneur needs to think out-of of-the-box prior to making investments, as identifying the correct sector and the most suitable business model is key to survival and growth in the current times.

Investment trends in Indian healthcare sector

Driven by increased domestic demand for high-end investment services as well as medical tourism, the healthcare sector has attracted huge investment in recent times. Healthcare in India is likely to see increased investment from US$ 34.2 billion in 2006 to US$ 78 billion in 2012 (CAGR of 15 per cent), with 80 per cent of investments from private players. The investments to this scale are expected to increase the bed ratio from 0.9 beds per 1000 people to 1.85 beds per 1000 people.

Moreover, large scale investments in infrastructure are required to make healthcare facilities at par with developed countries.

According to a survey conducted by consulting firm, Grant Thornton, India is expected to witness the largest number of merger and acquisitions (M&A) in the pharmaceutical and healthcare sector in 2012. The survey that was being conducted across 100 companies stated that fourth of the respondents were bullish on acquiring companies in the pharmaceutical space.

"The expectations of M&A activity in the pharma and healthcare sector could be explained by factors such as the impending patent cliff in the US, the increasing attractiveness of India as a low-cost R&D destination and the increasing success of Indian firms in getting ANDA approvals," said Sunil Makharia executive VP (finance) Lupin Pharmaceuticals. Patent cliff refers to expiry of legal protection to top-selling drugs.

Government Initiatives

The healthcare sector in India is witnessing a growth trajectory. The Government has taken several steps required for non-resident Indians (NRIs) to invest in healthcare and to develop healthcare sector infrastructure within a short span of time. The Government has decided to increase health expenditure to 2.5 per cent of the gross domestic product (GDP) by the end of the Twelfth Five Year Plan (2012-17) from the current 1.4 per cent.

India is becoming an Investment Hub

India is the fastest growing economy in the world with buoyant investment climate. According to recent trends, India is only second to China in the league of favorite investment destinations. As the Indian economy is developing very fast, it has opened new avenues for people to start businesses. The country is extraordinarily rich in various resources with very low-cost labour. Doing business in India is a profitable option as the majority of the industries and sectors are almost untapped and hence the fear of facing stiff competition is less.

Entry Routes for Investment in India

Foreign Investment is easily permitted in almost all sectors. An Indian company may receive Foreign Direct Investment under two routes:

Automatic route: The foreign investor does not require any approval from the Reserve Bank of India or the Government of India for making investments. FDI up to 100 per cent is allowed under the automatic route in all sectors.

Government Route: The prior approval of the Government of India, Ministry of Finance, and Foreign Investment Promotion Board (FIPB) is required for making investment in India.

Sectors that an investor can look for long-term prospective are:

Banking: The Indian banking sector is one such industry, which has enormous upside growth potential. Investing in India can give investors above average return over long-term in the banking sector.

Healthcare: With the rise in disposable incomes and penetration of healthcare insurance, the demand for healthcare is growing day by day. The health and pharma sectors are quite promising in the current market conditions. Investors with a long-term prospect can invest in strong companies in the healthcare sector.

Education: The Indian Education industry is another industry which is poised at the wings of growth. Increasing awareness, rising disposable incomes and availability of loans for higher education creates a huge demand in the sector. So, it is one of the most important investment sectors in India.

Food processing: India is a country that largely depends on its agriculture. Thus, food processing industry in the country is among the largest in the world. The industry enjoys patronage from government, private players and cooperative sectors. Even the government ensures steady investment in this sector by introducing various changes in the “National Food Processing Policy”.

IT Sector: India is known as the IT hub. The BPO (Business Process Outsourcing) and the KPO (Knowledge Process Outsourcing) industries are enjoying a fast paced growth rate. Thus, investing in the giant software industry in India is really a good decision.

Real estate: Real estate has emerged as one of the most appealing investment sectors for domestic as well as foreign investors. The real estate sector will continue to derive its growth in future because of changing consumer lifestyles. For example, nowadays people prefer to live in societies (apartments) with facilities like swimming pool, gym, security rather than just houses.

"Our economic and commercial relations are expanding. But there is still a lot of untapped potential that needs to be exploited, especially in sectors like agro-processing, manufacturing, pharmaceutical, medical equipment, seafood, automobile parts, tourism and hospitality, IT and IT-enabled services," according to Anand Sharma, Commerce and Industry Minister.

Growing Healthcare Market in India

India is one of the most profitable healthcare markets globally. The sector is one of the largest and rapidly-growing sectors in India, in terms of revenue and employment. The Indian healthcare sector comprises the sub-sectors of hospitals, medical infrastructure, medical devices, clinical trials, outsourcing, telemedicine, health insurance and medical equipment.

The main challenge is to deliver affordable health care services to India's billion-plus population. This signifies enormous opportunities for the medical community and other service providers in India. The leading factors supporting the growth of the industry are- prevalence of various diseases, rising urbanization, untapped market, increasing life expectancy, and active private sector participation. The healthcare in India is controlled mostly by major foreign companies. The foreign companies have subsidiaries in the country, mainly because of the availability of cheap and skilled labor.

The Indian healthcare sector is a rapidly-growing sector with high potential for future growth, both in urban and rural India. In the year 2011, the sector was sized at US$ 50 billion as it employs a total of 4.5 million people directly and indirectly within India. The sector is poised to grow to US$ 100 billion by the year 2015 and further to US$ 275.6 billion by 2020, according to the estimates by ratings agency Fitch.

FDI in Hospitals and Manufacture of Medical and Surgical Appliances

The economic reforms launched by the government from 1991 onwards have resulted in significant economic growth and the integration of India into the global economy. With the opening up of the Indian capital markets to Foreign Institutional Investors, the foreign direct investment regime too has been increasingly liberalised.

The health care industry in India has been witnessing a potential upsurge for the past few years especially in the hospitals and manufacturing of medical and surgical appliances.

The total inflow of FDI in India in the hospitals and diagnostics sector was US$ 1 billion from April 2000–April 2011, according to Department for Industrial Policy and Promotion (DIPP), which is responsible for formulating the FDI policy in the country.

FDI inflows to medical and surgical appliances are estimated to be around US$ 20.5 million. Medical and Surgical Appliances is Rs 981.7 million industry with a share of 10.59 percent in the global market.

Some of the government initiatives boosting Indian healthcare sector are:

There have been a number of initiatives taken up by the Government of India for the enhancement of healthcare sector in the country. Some of them are:

100 per cent foreign direct investment is permitted for health and medical services under the automatic route.

The National Rural Health Mission had allocated US$ 10.15 billion for the up gradation and capacity enhancement of healthcare facilities. The aim of NRHM is to provide facilities of quality healthcare in India.

In March 2010, the government allocated an additional US$ 1.2 billion for six upcoming AIIMS-like institutes and upgradation of 13 existing government medical colleges in order to meet revised cost of construction.

FDI in Indian Pharmaceutical Market

The pharmaceutical industry in India is one of the largest and most advanced among the developing countries. The industry stands third in the world in terms of volume. It ranks 14 in terms of value and is expected to grow 8 to 9 per cent annually. According to a research done by Associated Chambers of Commerce and Industry (Assocham), the Indian pharma industry is expected to reach US$ 20 billion by 2015, making it one of the world's top 10 pharmaceuticals markets.

In India, there are many small sectors, medium sectors, private limited companies and public companies that have been consistently manufacturing various medicinal products to meet the increasing demands of the people. The foreign investors can invest in Indian companies through the purchase of shares, debentures, equities, or bonds from an Indian company.

Pharma industry in India is growing at a rapid pace, marked by a number of mergers and acquisitions and growth in foreign expenditure. The sector is going to be a major area of focus in the coming years as Indian medicines are increasingly becoming popular in many developed and developing countries because of the cost effectiveness and easy availability.

India saw FDI inflow of US$ 341.49 million in the drugs and pharmaceuticals sector between April 2009 and February 2012. Also, the government has liberalised investments made by registered Foreign Institutional Investors (FIIs) under the Portfolio Investment Scheme (PIS) from April 10, 2012. Earlier, these spendings required approval from the government.

There are numerous ways for foreign company to enter in to an Indian market. Different types of foreign investment in India are:

Green field investment is FDI when a company establishes a subsidiary in a new country and starts its own production. It involves construction of a new plant, rather than the purchase of an existing plant or firm. According to the latest rules of Reserve bank of India (RBI), FDI, up to 100 per cent, under the automatic route, is permitted for green field investments in the Indian pharmaceutical sector.

Brown field investment is FDI that involves the purchase of an existing plant or firm, rather than construction of a new plant. For e.g. many host countries encourage the formation of joint ventures, as a way to build international cooperation. Joint venture is an equity and management partnership between the foreign firm and a local entity in the host market. FDI, up to 100 per cent, under the government approval route, is permitted for brown field investments in the Indian pharmaceuticals sector. Under the new rules, the overseas investor will have to seek permission from the Foreign Investment Promotion Board (FIPB) for any merger or acquisition.

In India, the cost of setting up research and development laboratory, scientific equipments, administration costs, transportation cost, raw materials cost and licensing procedure is much less when compared to any developed countries. The main determinants of FDI in India are availability of huge natural resources, cheap labor, steady economic growth, huge benefits and concessions granted by government, increasing population and per capita income, etc. So, there are huge opportunities for foreign investment in India.

Investment Scenario in Indian Market

The process of reforms as part of liberalization has resulted in greater investment in Indian market. In today's economy of less income growth and highly increasing cost of living, one has to know how to use his/her savings to generate higher returns. Availability of too many options and no clear idea about these choices is creating a hostile situation for the investor to choose the best among the available alternatives.

An investor has several investment alternatives (such as stocks, bonds, precious metals, etc.) to choose from, depending on his risk profile and expectation of returns. Different investment substitutes represent a different risk-reward trade off. Low risk investments are those that offer assured, but lower returns, while high risk investments provide the potential to earn greater returns. Hence, an investor can choose the most suitable investment on the basis of his/her risk tolerance.

Best investment options in India

Some of the investment alternatives available in the Indian investment market are:

• Investment in Fixed Deposits- FD is one of the safe investment options with the current annual rate of interest of 10 per cent.
• Investments in Insurance- Insurance-cum-investment options like unit linked insurance plan (ULIPs) are beneficial for the investors. Insurance offer quality services to cover life, money and assets along with low-risk profits.
• Investment in Mutual Funds- People may select mutual funds as an investment alternative on the basis of long term performance, short term performance, consistent returns, etc.
• Investment in Equity- Private equity as an investment substitute is growing fast in India. With a business of US$ 20 billion in 2010-11, the share of equity investments is expected to increase in coming years.
• Investment in Public Provident Funds- PPF is a government guaranteed fixed income security with a minimum amount of Rs 500 and maximum of Rs 1, 00,000 in a financial year; PPFs are now a popular choice of investment in long run.

Points to be considered before taking investment decision

Risk – It is important for the investor to choose the investment option on the basis of his/her risk profile. For e.g. - A low risk investor should not invest into equities. He should look for the safe option for investment. Risky asset class causes a loss of principal.

Liquidity – Liquidity is also an important criterion for the selection of Investment Avenue. For e.g. - An investor should not invest into public provident fund (PPF), if he needs money in 3- 4 years time frame. PPF has minimum lock in period of five years.

Time horizon – Investment should be done by considering the specific time horizons. For e.g. - For short term investment, mutual fund or fix deposit could be a good option, where as for long term, real estate and regular investment into equities could be a good option.

Taxation – Taxation affects the real returns of investment, investor should always look at the tax aspect of any investment before investing into it.

The scope for business in India is vast. Indian economy has grown as one of the significant economies in the world having immense potential towards long-term growth. The growth has been backed by the various industrial sectors to a great extent. The sectors mainly include technology, manufacturing and service industry.

India: Hotspot Investment Destination for Foreign Investors

India is the largest democracy in the world. It ranks second in terms of population. The policy of liberalization has transformed the prospects for the Indian economy. Today India is one of the favorite destinations for global investments. The major investors in India are Mauritius, Singapore, the US, the UK, the Netherlands, Japan, Germany, etc. Foreign direct investment (FDI) in India went up by 31 per cent to US$ 27.5 billion last year. The sectors that attracted maximum FDI last year include services (financial and non financial), telecom, housing and real estate, and construction and power.

The government has come up with several incentives like import of capital goods at concessional customs duty, liberalisation of external commercial borrowing norms, tax holiday to encourage investments, etc. "The government should allow 100 per cent FDI in sectors like domestic airlines and insurance sector to boost inflows and generate employment, "as per Rajiv Kumar, Secretary General, FICCI. Sectors like automobiles, chemicals, food processing, oil and natural gas, petrochemicals, power, services and telecommunications have witnessed tremendous investments.

Investment options in India

There are number of options available for foreign investment in India for both short term and long term. The major options are real estate, bonds, mutual funds, money markets, gold, and financial assets (non-marketable, LIC policies & equity shares). Today, there are businesses and industries that are even 100% open for such investment. Some of the sectors that are still not open for foreign investment include, rail transport, lottery business, tobacco business, certain agricultural activities, atomic energy, mineral oils, etc.

Who can invest in India?

There are following categories of non-Indian resident who may invest in the capital of Indian Company:

• A non-resident entity (other than citizen of Pakistan)
• A citizen or entity of Bangladesh under Government route.
• NRI resident as well as citizen of Nepal and Bhutan on repatriation basis.
• Sebi registered NRIs through a registered broker on recognised India stock exchange.
• Foreign venture capital investor registered by Sebi.
• An FII (foreign institutional investor) may invest in the capital of an Indian company under the portfolio investment scheme.

Business Opportunities in India

There are various factors that create favorable business opportunities in India are:

• There are huge business opportunities in Indian retail sector as people have become more conscious about branded products. Improvement in purchasing power and huge middle class population results in the growth of the economy.
• India's competitive advantage in information technology can be used to enhance productivity in industries.
• Availability of large number of technical manpower has led to the expansion of manufacturing base across different industries.
• India's rich natural resources, availability of better infrastructure, well established banking system, better agriculture, etc. have created more investment opportunities.
• The capital markets in India are one of the fastest growing markets in the world, attracting huge investments from foreign institutional investors.
• The economic reforms have brought in policy changes in terms of freedom of entry, investment, location, usage of technology, import and export. These changes have created an investment friendly environment.

Investment Scenario in Indian Power Sector

Indian power industry has a long way to go. India’s fast-paced economic growth and its rapid rate of industrialisation and urbanisation have fuelled an increased demand for energy.

India has made remarkable progress in the power sector during the eleventh plan. The sector ranked sixth among the leading sectors of the Indian economy and has attracted US$ 4.6 billion in foreign direct investment since 2000. There are three major pillars of the sector - generation, transmission, and distribution. Generation is further divided into central sector (Public Sector Undertakings), state sector, and private sector, which constitutes total installed capacity of 31.21 per cent, 47.49 per cent and 21.17 per cent respectively.

Investment in Power Sector

With the population increasing at a rapid pace and a wide gap between demand and supply, the Indian energy sector offers strong opportunity to industry participants. After China and the US, India has been ranked as the third best investment destination in renewable energy sector.

The power sector in India requires an investment of up to US$ 400 billion in a span of five years to end on March 2017, according to P. Uma Shankar, Secretary, Ministry of Power, India.

The organised trading business in energy sector is set to be opened up for NRI invest in India. This attracts foreign funds to invest in the Indian power industry. 26 per cent FDI will be allowed at par with the level of commodity exchanges in the sector.

Investment Opportunities and Future Prospects

If India continues to grow at the current rate, the Indian economy would emerge as the second largest in the world, next only to China, by the year 2050. It is therefore expected that, the demand for energy would also rise substantially in the future.

US companies investing in India's green energy market will have good prospects and it will be a win-win situation for both the countries.

The generation capacity of the country stands at over 180 MW (as in August, 2011) with a dominant share of the state sector. The private sector, which currently contributes around 22 per cent of the generation capacity, is expected to increase its share to 52 per cent by 2017.

Government Initiatives

Indian Government has proposed various proposals in the budget 2012 to stimulate investments in power sector in India, which provides a massive opportunity to the American companies.

In order to attract NRI invest in India, FDI up to 100 per cent is permitted under automatic route for projects of electricity generation (except atomic energy), transmission, distribution and power trading.

The Government of India is working on the plan to generate 470 gigawatts (GW) of nuclear energy by 2050, announced in 2009. Thus, it opens the door for huge opportunities in the sector.

The Government has planned to set up four solar thermal power projects through the solar energy corporation of India.

Being one of the fastest growing economies and the second largest populated country, India represents an attractive investment destination for the power industry.

Investment Opportunities in Indian Education Sector

India has the third largest education system globally, after China and the US, with one million schools and 20,000 institutes for higher education. The common man's dream of making a better life for himself has made him focus more and more on education. Due to rising income level in India, middle class is focusing more on providing quality education to their children.

The education sector is divided into two main segments; the core segment comprises of schools and higher education, while the non-core comprises of coaching classes, pre-schools and vocational trainings.

There is a huge demand-supply gap in the Indian education sector. This has attracted many private players to invest in education and training institutions with the aim of making the candidate employable by training them in the right courses.

Importance of Private Investment in Education Sector

Education sector in India is finding it increasingly difficult to cope with the rising market demands and competition from global educational institutions due to low investments. It has become very imperative to have increased private investment to improve the infrastructure. The sector offers opportunities to increase capital because education still lacks good-quality infrastructure in the country and investors have the opportunity to build it. So, it is very beneficial to invest in Indian education sector for the private players.

Private Equity Investors have already started investing in educational projects due to increasing demand trend. India’s private banking giant HDFC (Housing Development Finance Corporation Limited) has confirmed that Private Equity investment have seen a tremendous growth since year 2005. HDFC has announced strategic plans to enter the education sector in India and approved an investment of 100 crores.

Government Initiatives

Initiatives taken by the government for the infrastructural development of education sector are:

• Rise in budget allocation for education sector by 17% i.e. Rs 150 crore for establishing new IITs and IIMs in India.
• A proposal was proposed for setting up 6000 schools at block level as model schools in the 12th Five Year Plan.
• Fund of Rs 1000 crore has also been allocated to National Skill development Fund as an initiative.
• Provide incentives to private sector for creation of infrastructure for higher education
• The government initiated measures to establish four regional centers of Indian Institute of Mass Communication (IIMC) to promote excellence in journalism.
• The Budget provisions earmarked for education of girl children should be enhanced from Rs 1,265 to Rs 3,000 in 2012-13.
• The allocation of Rs.636215 crore to UGC (University Grants Commission) which involves the finances for deemed and central universities across India.
• Survey by apex industry body, ASSOCHAM, predicts an investment of Rs. 4,500 crore over next three years
• To increase the IT spending from an estimated $356 million in 2008 to $704 million by 2012, reflecting in a Compounded Annual Growth Rate (CAGR) of 19 percent during 2007-2012

India becoming NRI’s Favorite Investment Destination

India is the fourth preferred destination for FDI just after the United States, China and Britain. Government offers several facilities to Non Resident Indians (NRIs) to attract foreign investment in India.

NRIs are allowed to invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). Under this scheme, NRIs can acquire shares/debentures of Indian companies with the help of stock exchanges in India.

The growth of nation comprises of various amendments of acts and policies, investment favorable taxation and other documentation process for starting a company, availability of human resources, etc. All these factors attract NRIs investment in India. The two most attractive features of the Indian market are high potential of the domestic market driven by an emerging middle class and cost competitiveness.

Investment Options

The RBI allows Non Resident Indians to hold accounts in Indian banks as business investors in India. There are different types of saving and deposit investment schemes based on the type of account. Joint holding is also allowed in these accounts subject to certain limitations. This can be a good investment option for NRIs who have parents or blood relatives in India.

RBI has also granted general permission for NRIs investment in India, who are willing to invest money in shares of growing companies in India. They have an option to invest in mutual funds, fixed deposits, shares and debentures of companies, etc. The limit of investment, type of company and few other factors are subject to regulations of RBI and SEBI.

The NRIs are also allowed to invest in Government securities and National Savings Certificate. They can also convert their money into property (except the agricultural land), so that it remains as a security on long term basis while the value of the investment grows with time.

Benefits for NRI Investors:

• Taxation policy in India has been changed to favor NRIs to invest in India
• Various provisions have been made to benefit NRIs
• Loans are provided to NRI against deposit schemes to construct homes in India
• With advancement in technology, mode of transaction has leaped a step ahead through demat accounts, internet banking facility etc.

Major Points for Investment:

• NRIs can directly invest in the Indian companies equity market using their own demat account or broker account.
• They can deal with only one bank at a time.
• NRIs can trade only in delivery-based transactions. Intraday trading (buy and sell on the same day) is not allowed for them.
• They will be allowed to invest only up to 5 % of the paid up capital of the company.
• NRIs need to have 100% funds at the time of buying. No exposure is given to NRIs.
• They need to have 100% stock available to them while selling. No short selling allowed.

It is very important to choose the best broker for NRIs investments in India. So that, all the NRI services that are to be availed are of high quality.

Investment Opportunities in India

Investment refers to the concept of delayed consumption, which involves purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns.

India has become one of the fastest growing economies. Investment growth in India is related to the growth of the economy. These days, people are getting more money as compared to the previous years. So, most of the investors look for emerging markets like India, where the growth rate is higher than the developed economies.

Today, it is very difficult to choose a sound investment plan so, most of the investors come with a question in mind “where to invest in India”.

There are various business investment opportunities available in both government and private sector according to risk, return, taxation, duration, etc.

Various Investment options in India

Short Term Investments options:
Bank Fixed Deposits: FD is the opportunity for retirees to diversify their investment portfolio. It is a very safe investment option in India as it generates stable income. It has low risk appetite. The period of ideal investment is 6-12 months.
Money Market Funds: They offer better returns than savings account without compromising on liquidity. The primary objective is to protect one’s capital and maximize returns.
National Saving Certificate (NSC): It is backed by the government of India, so it is a safe investment method. Minimum amount is Rs.100 and there is no upper limit.

Long Term Investment options:
Gold: Investors generally buy gold as a hedge or safe haven against any economic, political or social crises. Gold is not the right option for investment in short run because it doesn’t pay any return or interest. But, in the long run, investing in gold is no doubt, a profitable option as it can be quickly converted to cash.
Real Estate: In India, real estate has become one of most successful business investment opportunity in the last few decades. It has huge prospects in sectors like commercial, housing, hospitality, retail, manufacturing, healthcare etc.
Investment in Stock: Stocks are shares of a company. When you invest in a company’s stock or buy its shares, you own a part of a company. It is the major investment option in India in long run.
Public Provident Fund (PPF): This includes fixed-income investment for high tax payers with low risk.
Mutual Funds: Investing in mutual funds is also subject to market risks but the return is good.
Life insurance policies, bonds, debentures, etc.

Investment options depending upon goal:

• Investment for safety – money market mutual funds, bank deposits, etc.
• Investment for income – company deposits, government securities, treasury, preferred stocks, etc.
• Investment for growth – equity mutual funds, domestic and overseas stocks, etc.
• Investment to fight inflation – gold, real estate, bonds, etc.

Investment from Tax Perspective:

One can minimize the tax liability on salaries by investing in eligible investments qualifying under Sec 80C. It includes investment in PF contribution, PPF investments, infrastructure bonds, mutual funds, life insurance premium, repayment of housing loan principle, PO deposits, etc.

So, there are innumerable investment opportunities available in India. All, one needs to check is, his interest, risk appetite, and investment tenure.