Buffet's interest in India: Will it materialize?

By Kukil Bora, SiliconIndia   |   Tuesday, 29 March 2011, 14:00 IST
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Buffet's interest in India: Will it materialize?
Bangalore: By simply adhering to his principles on value investing, legendary investor and CEO of Berkshire Hathaway Warren Buffett has made billions of wealth through investments in the stock markets. What he prefers as an ideal investment ground are those companies having the pricing power or which is the market leader in its field or sector. In his recent visit to India he said that there is a huge opportunity in the Indian markets as well, and in his own words, he is scouting for opportunities here. Buffett is right on the point that the Indian markets present a huge investment opportunity for the intelligent investors. But what made him decide to invest in India very late? 80 years old Buffett has said that India needs to provide more profitable grounds for foreign investors to let them participate more in India's growth. There is a 26 percent cap on the foreign investment in Insurance sector that does not give very favorable opportunities for big insurance players. This is the reason they are deciding to stay away. He is of the opinion that if the cap is increased from 26 percent, it will be more attractive for insurance companies. It's worth to be mentioned here that a bill to raise the foreign investment cap from the current 26 percent to 49 percent in private insurance has been tabled and is with a Standing Committee of Parliament. It is no surprise that Warren Buffett, investing heavily these days in Lubrizol, Burlington, has travelled to India as the cash reserves of Berkshire Hathaway has increased to $38.3 billion dollars. What better will be for him than to Invest in a growing and stable economy like India? According to him, he was drawn to India because of its growing market, increasing purchasing power for a growing population, and improving ability to produce things. India is currently the second fastest growing economy of the world. India's growth potential may well be measured by these facts, which say that India's current economy is worth $1.3 trillion ( 58.21 trillion), and is set to grow at an impressive rate of 9.25 percent in coming years. Except China, which other economy can even think of such a fast growth rates of GDP? Probably no one. India's Insurance sector is growing at a whopping rate of 34 percent per annum. That's another reason for which Buffet is interested in the Indian Insurance sector. His company Berkshire Hathaway has done collaboration with Bajaj Allianz General Insurance Company and is starting its insurance venture from this month. But due to the 26 percent cap of foreign investment in Indian Insurance sector, the company is carrying only 26 percent ownership. Apart from Buffet's Berkshire Hathaway, companies like Allianz SE, ING group, Aliva PLC also eyeing on the Indian market, but the cap on FDI in India has made them staying away. In 2006, Berkshire Hathaway took over Iscar, an Israel-based cutting tool manufacturing company at $4 billion. That was the biggest ever investment deal outside the U.S. It was the hint that the legendary investor is looking global (outside USA) for investment opportunities. Will Mr. Buffet invest in India or this is just euphoria behind his visit? Well, a positive answer to this question is still under uncertainty. One of the key criteria is ethics and transparency, and unfortunately, there are only a handful of Indian companies meeting the same.