The great Indian wealth exodus is gathering pace. In recent weeks, a flurry of high profile acquisitions by the country's billionaires has raised more than a few eyebrows in the City. While headlines trumpet the global ambitions of India's elite, the underlying story is one of capital flight from a domestic economy that is losing its mojo.
Consider the numbers. India's GDP growth has slowed to a three year low of 4.7%. Industrial output is barely crawling. And the central bank, once a hawk, has slashed rates repeatedly to little effect. This is not the stuff of an emerging market superpower. It is the backdrop for a cautious, if not fearful, investor class.
So what do India's richest do when their home market stalls? They go shopping abroad. The recent spree has seen everything from a $1.5 billion takeover of a British steelmaker to a $300 million stake in a New York hotel group. The targets are varied but the message is consistent: Indian capital is seeking safer, more predictable returns overseas.
The irony is thick. For years, policymakers in Delhi have courted foreign investment with tax breaks and red carpet rhetoric. But now it is Indian money that is voting with its feet. The signal is clear: the business environment at home is no longer competitive.
From a financial perspective, this is a textbook case of capital seeking its highest risk adjusted return. But there is a darker side. A sustained outflow of investment capital can weaken the rupee, push up borrowing costs, and starve domestic industry of the funds it needs to modernise. It is a vicious cycle that has ensnared many an emerging economy.
Market watchers should pay close attention to the rupee. It has already lost 10% against the dollar this year. A continued erosion would stoke inflation by making imports more expensive, squeezing a middle class that is already feeling the pinch. The central bank would then face an unenviable choice; raise rates to defend the currency and choke off what little growth remains, or let the rupee slide and risk inflation heading higher.
Gilt yields are another tell. Indian government bonds have been under pressure, with the 10 year yield rising 50 basis points in the last quarter. That suggests investors are demanding a higher premium to hold Indian debt, a classic sign of waning confidence.
What is to be done? The usual recipe of structural reforms is the standard prescription. But implementation has been patchy. The government's recent corporate tax cuts were a step in the right direction, but they were largely one off measures. The deeper issues land acquisition, labour laws, and contract enforcement remain unresolved. Until they are, the smart money will continue to look elsewhere.
For now, the foreign buying spree is a symptom. It is a warning that India's growth story, once the envy of the world, is in danger of turning stale. Investors should brace for more volatility in the months ahead. The bottom line is this: when the billionaires head for the exit, it is time to check the foundations of your portfolio.
In the City, we call it smart money. But for India Inc., it looks increasingly like a vote of no confidence.
