Prem Watsa says India reforms, tech push give it a unique place post Covid

Indian-born Canadian billionnaire adds political stability, rising consumer demand represent a welcome signal to global investors

Recent policy changes by Prime Minister Narendra Modi's government represent a welcome signal to the global investor community. The combination of a reform-oriented government, a large population with rising consumer demand and the accelerated rate of technological adoption mean that India is in a unique position to capitalise on the opportunities in a post-pandemic world, says the Indian-born Candian Billionaire V Prem Watsa, chairman of Fairfax.

In a letter, which was jointly signed by Fairfax CEO Chandra Ratnaswami, to the shareholders, he said, the political stability has facilitated important policy initiatives in 2020. The Prime Minister's goal of becoming a $5 trillion economy in the next few years can become a reality with continued liberalisation.

"The policy changes initiated during the pandemic are significant measures targeted to attract foreign capital”, said Watsa. He listed some of the notable policy changes including Production Linked Incentives (PLI), farm trade reform, labour law reforms among others.

Adverse reaction from farmers’ organisations has centered principally on the reduction of government procurement and a stronger guarantee for the minimum support price. The government and the farmer organizations have been in a series of discussions to resolve the outstanding concerns, he said.

Labour Law Reforms, represent a consolidation of 29 existing laws into four legislative areas: the Wage Code, the Industrial Relations Code, social security and occupational health, safety and working conditions. These four codes provide flexibility for employers and represent an important update from previous disparate pieces of legislation. Important areas of autonomy pertain to retrenchment of the workforce, inclusion of workers in the key service sectors and reducing compliance costs for companies, he said.

Rise of e-commerce & Start-ups: COVID-19 accelerated the pace of adoption of e-commerce and the Indian e-commerce market is expected to grow from $120 billion to $200 billion by 2026.

"These developments represent a welcome signal to the global investor community. The combination of a reform oriented government, a large population with rising consumer demand and the accelerated rate of technological adoption mean that India is in a unique position to capitalize on the opportunities in a post-pandemic world," said Watsa.

Terming the recent Union Budget as 'strong growth-oriented, yet fiscally responsible and business-friendly', he listed key initiatives in the budget include privatization of several government owned companies, increased spending on infrastructure, increased FDI limit in insurance to 74% and creation of a bad bank to ease the bad loan crisis. As well, the government did not raise personal or corporate taxes.

“These measures, combined with a healthy level of foreign exchange reserves and stable inflation levels, make this one of the strongest pro-growth budgets in recent memory,” said Watsa, adding that upcoming Assembly elections at West Bengal, Tamil Nadu and Kerala will have national implications, as will the ongoing farmer protests on the recently passed farm liberalisation laws.

"Nevertheless, Prime Minister Narendra Modi is in a commanding position with broad support for his policies. In a recent national poll, almost three-fourths of respondents expressed satisfaction with Prime Minister Modi’s handling of the pandemic and his overall performance. In addition, a fractured opposition party has given the ruling BJP a stronger hand in promoting reform-oriented policies," said Watsa.

Fairfax India’s book value per share (BVPS), its key performance measure and grew at a compound annual rate of 11.2%, Fairfax India’s BVPS declined by 3.1 per cent in 2020 (mostly reflecting a 2.3% decline in the Indian rupee in 2020) from $16.89 at the end of 2019 to $16.37.

In the past year, Fairfax India has underperformed the listed equity markets in India. However, the company said that at current levels, the Indian markets are trading at extremely elevated valuations.

Fairfax India’s net loss in 2020 was $41.5 million as against profit of $516.3 million in 2019, largely as the result of net unrealised losses on investments of $26.6 million compared to net unrealised gains of $530.4 million in 2019. Net loss also reflects interest income of $6.0 million and net foreign exchange losses of $14.2 million.

Since its inspection, Fairfax India has completed investments in 10 companies (13 currently, as one has split into four listed entities), all sourced and reviewed by Fairbridge, Fairfax Financial Holdings’ (Fairfax) wholly-owned sub-advisor in India.