With rising trade deficit on account of our import bill, due to energy and gold, sustainable projects seem to be the natural way out in terms of developing solutions for our energy needs and moving away from oil, as well as providing investors with good investment propositions to move away from gold. When this is a win-win situation for us, why have we not seen a spurt in sustainable finance in India? Sustainable projects have significant positive externalities, which the private sector nurturing such projects cannot fully capture in their profit and loss accounts. That is, public returns from these projects far out weight private returns. These projects also involve huge front-ended spending with uncertain future returns. Yet, in many cases, with the maturity of such projects and the associated technologies, unit production/generation cost reduces, often exponentially.
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With initial financial support from government and/or multilateral agencies and clarity on regulatory environment, I am sure there would be major improvements in funding for sustainable projects in India too.
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Consequently, there is a clear case for providing public grants for private participation in such projects in transparent manner, especially during the initial phase of such projects. This model is being followed successfully in many industrialized countries. With initial financial support from government and/or multilateral agencies and clarity on regulatory environment, I am sure there would be major improvements in funding for sustainable projects in India too. In Short Term, Index has rallied due to sudden FII influx and recent reforms statements, but analysts are also skeptical of overvaluation of many sectors as they have not performed well. (Bank, Energy).What’s your take on it?
The perception that Indian equity is currently overvalued is not corroborated by data. First, in terms of price-to-earning (PE) ratio, bellwether indices like Nifty and Sensex are well below respective five as well as ten year averages. Second, in price-to-book terms, the bellwether indices are nearly one standard deviation below the long-term averages. Three, in terms of sector specific valuation parameters, Indian equities are cheaper than most emerging market (EM) peers. For example, Indian consumer goods have the lowest price-to-book multiple among the major EMs. In PE terms, the sector is cheaper than most EMs including Brazil, China, Indonesia, Philippines, Malaysia, Mexico, Taiwan and Thailand. Indian healthcare is also the cheapest in terms of price-to-book multiple among the major EMs. The sector is also cheaper in India in PE terms compared to most EMs with the exception of Russia, Malaysia and Mexico. Indian financials are the cheaper than all peers but Malaysia in price-to-book terms and also cheaper in PE terms than other peers except Russia, South Korea and China. Technology and telecommunication sectors in India are also cheaper in terms of price-tobook multiples than these sectors in most EMs. For basic materials, India commands second lowest PE (Russia cheapest) as well as priceto-book multiple (Malaysia cheapest) among the EMs. Given these, I fail to understand why valuations concerns resurface every time the equity market starts going up a bit. What are the Key innovations you look forward to in the Indian financial Sector, for making it more globally competitive and attractive to foreign investors? Several theses can be written on the topic. I, however, feel that with the recent sharp decline in proportion of financial savings in the overall household saving, especially the marked erosion of the share of banks and mutual funds in household savings, making the financial sector attractive for residents is more important than making it attractive to FIIs. Leaving this