Hong Kong: India has not really been among the top investment destinations for Hong Kong based companies these last few years for various reasons. But now, when India's status as one of the best investment bets in Asia is indisputable thanks to its robust economic growth, a treacle of fresh investments from Hong Kong could begin flowing in. This means instead of looking increasingly to countries like Singapore, Indian businesses – especially startups and those needing large investments – could also tap Hong Kong’s moneybags.
Nicholas Kwan, Director of Research at Hong Kong Trade Development Council (HKTDC), says India is already the fourth largest trading partner for his country with $24 billion worth of bilateral trade last year, when his country's exports to India grew 8%. At a time when overall Hong Kong exports were down 3%, this kind of growth will force any country to look at the huge potential Indian economy and its steady growth offers.
But not just trade enhancement, Kwan says Hong Kong based investors are showing growing interest in two Asian economies - India and Vietnam. "Hong Kong has a lot of incubators, PEs and Angel Funds. It has the second largest asset management centre in Asia after Japan. Now I see that India and Vietnam are two economies where Hong Kong's investors have growing interest".
Kwan rattled off some recent examples of investments in India-related ventures by Hong Kong based investors:
1. Jaarvis Labs Ltd has launched an India-specific accelerator that invests up to $50,000 (Rs 3.05 million) in start-ups that offer products and services related to Internet of Things (IoT), online-to-offline e-commerce services, mobility and other emerging technology areas.
2. Lion Rock Capital, Hong Kong has invested in Bigbasket.com
3. Vectr Ventures has invested in India-based LafaLafa.
4. Steadview Capital has invested in Flipkart, Ola, Urban Ladder and Saavn.
5. Horizons Ventures, owned by Hong Kong based tycoon Li Ka-Shing, has bought a small stake in Ezetap (mobile payment systems).
That Hong Kong is looking anew at the growth potential of the expanding Indian economy now more carefully than ever is evident from some of this country's recent moves. In February this year, the Chief Executive of the Hong Kong Special Administrative Region, C Y Leung, had led a business delegation to India to discuss bilateral trade and iron out sticky issues. This was the first ever visit by the chief executive to India.
Now, Hong Kong based venture capitalists are also taking a close look at the potential of the Indian market. John Levack, Vice Chairman of the Hong Kong Venture Capital and Private Equity Association, says the venture capitalists in Hong Kong will form an India committee this year to recognise growing interest in India among the members, compared to the past.
Levack says now could be a good time for money from Hong Kong to flow into India for several reasons. One, money has now begun to flow into Hong Kong from China and India is a logical place for investment. Two, Hong Kong based tycoons like Li Ka Shing are looking towards India, besides pension funds and asset allocators who are also looking at the Asian Tiger.
"Hong Kong has Canadian Pension Fund (CPP), which may also look to invest in India," Levack says. A careful look at PE and VC investment data shows that Hong Kong based firms with "preference" for India are 35 now against just 19 in 2013. Since there are 180 VC and P firms now, this means every fifth Hong Kong based VC and PE is interested in India against just over 15% such firms which were keen on investing in India in 2013. These 35 VC and PE firms have raised funds to the tune of $33 billion in the last decade.
But the road to heightened investment flows from Hong Kong is not a smooth path. There are many hurdles to this, including the past experience of investors when Hong Kong based funds burned their fingers by investing in Indian ventures, especially in the startup rush of 2007-08. Also, India's fear of anything Chinese - including investments from Hong Kong - makes it rather difficult for Hong Kong based companies to come into India. There are also some doubts about India’s economic growth statistics among VCs in Hong Kong, besides issues such as the pending Double Taxation Avoidance Agreement (DTAA) between the two countries.
Raj Sital, chairman of The Indian Chamber of Commerce Hong Kong, says there are multiple deterrents for Hong Kong companies to invest in India, thanks to India equating Hong Kong with investments coming in from China. But a positive development is that this country is planning to open an Economic & Trade Office in India next year, to enhance bilateral trade between the two countries.
All told, India needs to recognsie the investment potential Hong Kong based companies possess and ease its mind about indirect investments from mainland China flowing in via Hong Kong.
It is interesting to see that India is already competing with Hong Kong and Singapore for attracting foreign capital into Asia. This story shows how India is aspiring to compete with the likes of Singapore and Hong Kong for foreign entrepreneurs by offering residence in return for investment. Foreigners investing Rs 100 million ($1.5 million) over 18 months or Rs 250 million over three years would now be eligible to live in India for 10 years. This so-called permanent residency status could be extended by another decade providing certain conditions are met.
This is a thoughtful move by the NDA government to make investing in India more lucrative for foreigners. It would be even better if India helped investors from Hong Kong too, by getting rid of its China fears.
(The author was in Hong Kong between September 7-10 at the invitation of the Hong Kong Trade Development Council HKTDC).