India Still a Favorite of Foreign Investors

Bucking the trend of depleting foreign direct investment world wide, India emerges favourite among foreign direct investors. Latest data indicate that FDI flows continued to hold up, at $2.7 billion in Jan 2009 as against $1.4 billion in the previous month. On a cumulative basis, gross FDI inflows have risen to 23.8billion during Apr-Jan FY09 as compared to $14.5 billion recorded during the same period last year.

According to a report by Citi Group on India market watch, now the key would be the sustainability of these trends in FY10. "While direct investment may hold up, given the changed global environment, there is less certainty on private equity flows, which are also classified as FDI under 'acquisition of shares' by the RBI and amounted to 20 per cent of FDI flows so far seen in FY09," the report mentions.

"In a bid to encourage inflows, the government introduced a number of policy changes last month. These include a relaxation of norms for downstream investment by foreign investors, making a clear distinction between activities of an operating or investing nature (or both)," said Rohini Malkani, Economist, Citigroup India.

"It laid down guidelines for either route of entry. While sectoral limits remain unchanged, these new guidelines essentially relax conditions for hierarchical foreign investment into

many sectors, such as insurance, telecom, etc."

Gauging trends between FDI inflows and the 30-share Sensex, the Citi report further says, global markets rose the most since November last year on the back of positive large US financials news. Indian markets gained the most in almost three months, in tandem with the benchmark Sensex rising 5.2% to 8756 in the truncated 3- day trading week.

Small and mid-caps lagged with the BSE Mid-cap index rising 2.1%, and the BSE small-cap index rising 0.8% in the week. Top gainers were Metals, Banks, Autos, and IT services.

Fiscal YTD outflows totaled US$12.3bn as compared with inflows of US$12.5bn during the same period last year.

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