INDIA is turning out to be a dream destination for foreign investment consultancies, thanks to rising interest from foreign funds and other institutional investors. Top-league investment consultancies like Mercer, Watson Wyatt, Gerson Lehrman, to name a few are expanding their India coverage.
Investment consulting or asset consulting — in market parlance — is advising institutional investors such as pension funds, sovereign wealth funds, endownments and foundations on investment opportunities in various markets. An investment consulting firm only recommends investment options; the actual trades (execution part) are done by investment banks, like UBS, Morgan Stanley and Citibank, and foreign broking firms.
"International trusts or family offices invest in emerging markets only on the recommendations of consultants. As they invest large sums, these investors don't want to rely on analysts employed with a broking firm or I-bank. They are more comfortable taking an independent, customised advice for deciding on investment options," said the fund manager of leading foreign fund house.
Investment consultants advise investors on long-term investment issues such as strategic asset allocation, portfolio structure, fund manager selection, monitoring, governance and operational efficiency. Investment consultants are also hoping to forge client relationships with domestic institutions to advise them. Their major revenue source still comes from advising outbound or overseas investments.
"All types of investors could be soon investing in India... at this stage, we are probably seeing more of sovereign, endowments, foundations and HNI funds seeking Indian assets. Pension funds still tend to allocate to emerging-market funds rather than to single-country funds," said Hansi R. Mehrotra, India business leader, Mercer Investment Consulting.
If one goes by broader estimates, over 40% of net inflows could be coming in from global ETFs and one-thirds from India-focused funds, according to experts. FIIs have invested Rs 27,736 crore in the Indian market since January.
"India is steadily becoming a very sophisticated market among other emerging countries. We expect hedging exposure (by foreign investors) to rise significantly over the next few years," said David Legg, managing director (Asia & Europe), Gerson Lehrman Group, which operates a network of over 2,50,000 experts who provide consultant services to businesses and investments.
Energy and heavy industries sectors are the most sought-after research points among investors wanting to invest in India, according to Mr Legg. "We are expanding our India coverage. Research on India will grow with the number of funds investing in the country's assets," Mr Legg added.
Technology providers and high-end 'investment decision providers', especially in derivative segment, are also planning to set shop in the country. Companies like New York-based REM Technology Consulting, which specialises in data and information management for banking, investments, wealth and portfolio management companies, has plans to include database on Indian markets.
"We intend to develop equity option databases based on the Indian Exchanges in the fourth quarter of 2010. Many of our clients have expressed interest in getting an expansive database on Indian markets," said Richard Malinowski, chief technology officer, REM Technology Consulting.
