We believe curbs on Chinese tech firms, in general, will benefit Indian tech firms across domains that are not only strengthening their base in India but are acquiring companies externally as well, says Nair.
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Deviprasad Nair is Head of Business at Helios Capital, believes that this move (China crackdown) will further fuel the existing dissent amongst foreign investors with respect to China’s policies and will eventually benefit emerging economies especially the likes of India, Vietnam, Taiwan.
Nair is a seasoned financial services industry professional with over 17 years’ experience in within the Investment management industry in India. Prior to joining Helios, he led the Business Development & Sales for PMS & AIF at ICICI Prudential Asset Management Company, responsible for the business P&L.
In an interview with Moneycontrol’s Kshitij Anand, Nair said that the recent acquisition of US-based kids learning platform Epic by Byju’s is a testimony of Indian tech firm’s inclination towards strengthening their presence in the overseas markets.
Edited excerpts:
Q) Chinese govt crackdown on ed-tech companies unsettled equity markets in the last few days. What is leading to the panic among equity investors across the globe?
A) The policy change by the Chinese Ministry of Education has asked its for-profit tutoring companies to convert themselves into a not-for-profit one which has sort of stalled the growth prospects of Chinese education technology companies triggering a panic sell-off then onwards.
While this is a recent development but if we look back in the recent past this shouldn’t have come as a surprise for the fact that the hints of official scrutiny over antitrust and stepping-up cybersecurity, personal data protection were dropped much before this by Chinese regulators in general.
We believe that steps taken by the Chinese government towards cybersecurity and data restrictions will post bigger threats to companies operating in the world’s second-largest economy, adding to the existing woes of market access, and raging competition with Chinese public enterprises for some of the foreign firms as well.
Some of the US-listed Chinese ed-tech may also get delisted and some Chinese ed-tech companies with weaker financials may run the risk of failure as this takes away the ease of fundraise and shuts the door on the face of such firms for sourcing additional funds as per the recent guidelines issued by the general office of Chinese Communist party of China publications, now that’s something which is the reason for jittery market behaviour apart from the existing murmuring around higher valuations in some of these tech companies.
Q) Recently listed IPOs have also seen billion-dollar of outflows lately. Amid the restrictions placed by the govt. do you think the institutional money would flow into other emerging markets, including India which looks slightly more attractive destination?
A) We believe that this move will further fuel the existing dissent amongst foreign investors with respect to China’s policies and will eventually benefit emerging economies especially the likes of India, Vietnam, Taiwan.
In recent past India has been a beneficiary of China plus one strategy of multinational firms in the electronic manufacturing and in the speciality chemicals segment, but, the only risk to this is the supply chain disruption due to ongoing covid 19 lockdowns.
We believe curbs on Chinese tech firms, in general, will benefit Indian tech firms across domains that are not only strengthening their base in India but are acquiring companies externally as well.
The recent acquisition of US-based kids learning platform Epic by Byju’s is a testimony of Indian tech firm’s inclination towards strengthening their presence in the overseas markets.
We also believe that India will be a default beneficiary of long-term foreign investment flows. Even in the last four calendar years starting 2017 India has seen positive flows in three out of the four years when compared to Emerging Asia including years of larger negative flows in Emerging ASIA (+$ 23.4bn India vs.-$ 32bn 2020 Emerging Asia) even YTD 2021 India is +$ 8bn against a -$ 27.1bn Emerging ASIA( India, Korea, Taiwan, Philippines, Indonesia, Thailand, Malaysia, ASEAN).
This and further curbs in our view will certainly open up India to some newer foreign investors and to the possibility of some positive changes in the existing weights of the MSCI emerging market index in favour of India which is currently at 9.9% where in China is almost 37.5 %.
Q) With a plethora of IPOs planning to hit D-Street such as PayTM, Policybazaar, Nykaa etc. Do you think lot of institutional money will flow into the IPO market?
A) If I am not wrong July-21 itself will be one of the biggest months since Sep 2010 for IPO’s including the stellar listing by the food delivery giant Zomato.
Even in the case of Zomato, some foreign investors have been allotted a lower number in overall terms which certainly leaves more room for additional participation subject to valuation comfort which obviously differs between a fund to fund and manager to manager.
Foreign investors would definitely want to invest in all of these tech firms as they have already seen their potential in western markets, and they know that the size of the opportunity is huge for these especially the leading Fintech/EdTech & food-tech companies in a market like India.
Pre covid the growth expectations were tepid but the covid environment fuelled the ongoing slow growth and has put all of them into a fast-track growth trajectory.
As more and more people get accustomed to this, we will see these companies posting challenges in front of the traditionally run setups.
Thus, this becomes a potential opportunity not only for institutional investors but for investors in general.
We can just imagine the potential for higher allocation by analysing the current holdings, that Zomato is backed by China’s Ant Group, Paytm is backed by Alibaba which has filed for a $ 2.2 billion IPO.
Even Zomato’s rival in food delivery Swiggy is backed by Softbank, so where would the investors go if policies are not made favourable for them. Liquidity has to find its own way either this way or that way it has to keep flowing and India offers a lot of attractive investment opportunities to them.
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