Foreign individuals not sold on India story

FIIs have invested $8.7bn in the Indian market in 2004, but wooing individual investors is another matter.

Individual investors are still not buying the India story. Foreign institutional investors (FIIs) have invested $8.7 billion in the Indian market in calendar 2004, and another $1.2 billion in this year, so far. But private banking clients refuse to see India on their investment horizon.

Klaus Martini, global chief investment officer (private wealth management) of Deutsche Bank AG, has a hard task convincing his clientele that the time is ripe to move on and take risks on 'alternative investments'.

Private bankers are pushing clients to invest in alternate asset class as the money making story is longer in developed markets' equity and bonds.

Investors need to invest in alternate investment options "" such as forex, hedge funds, private equity, commodity and real estate "" as well as look at Asian equities.

Alternate investments include India and China in a major way as the growth story "" be it in bullion, steel, oil, or real estate "" stems from these two emerging economic powerhouses, said Martini.

Asia is changing the world and is changing the investment horizon. Oil prices are high because of great demand from India and China, and over the last 15 years fresh exploration and development have not taken place. With greater infrastructure activity taking place in these markets, metal prices are also on the rise.

Developed countries do not know what to do today as China, which was the largest importer till two years back, is now exporting steel. This has become a problem for the Western countries, said Martini.

Martini's current recommendations to his clients include India. As a percentage of global funds managed by Deutsche Bank, funds invested in India may be meagre, but in the last two years, the amount invested has grown by more than 100 per cent, he pointed out.

Martini's wealth management division manages assets worth EURO 166 billion for private clients.

The lack of interest in emerging economies like India and China is largely because investors have burnt their fingers in the past. "At the same time, clients do not understand much about the relevance of investing in these economies," said Martini.

Private banking clients today are in the "wealth preservation" mode. They prefer to invest in equity and bonds in developed markets even though returns are just a few percentage points over the rate of inflation, pointed out Martini.

On a balanced investment portfolio (50:50 investment in equity and debt), post inflation and tax, the average return is about 2-3 per cent. Martini assumes a return of 8 per cent on equity and 3-4 per cent in the bond market in developed countries.

"One can no longer build a fortune in the stock market. That is not what we want to offer. We would like to give an additional return of 2-3 per cent through alternate asset allocation," said Martini.

This explains his visit to India last week, as he outlined his priority that of getting successful investment processes going and then encouraging his global clients to buy the India story.