India Rocks

India Rocks

In equity markets stocks are available at the unimaginable prices now, thanks to the panic selling particularly by Foreign Institutional Investors (FIIs). Since January 2008, they have been net sellers in equities of Rs. 51,463 crore and since last six months they have been continued to crowd the sell counters. So, is the interest in India growth story dying an untimely death? Are the days of rosy pictures and obsequious prognosis over? Yes, to some extent, India’s growth will slow down and many projects, excellent growth in earnings will halt in short term. Certainly, in long term, India is set to grow exponentially. It’s intriguing then why FIIs are cashing out on such a large scale? The reasons are many. Few of them are- increased risk aversion amongst overseas investors, attempts to make exorbitant losses incurred during subprime crisis good and permeated fears of deep global recession. Contrary to this, Foreign Direct Investment (FDI) is consistently increasing. Since January this year till July FDI equity inflows grew by 90% over the corresponding period in previous year. The total FDI investments in this period was Rs. 98,860 crore against Rs 51,969 crore in the corresponding period in previous year. A majority of this part comes from tax heavens like Mauritius with 43.5% share followed by Singapore and the US each with 8% share. Sectors that attract most investments are services sector (21%), IT (12%), construction and telecom each over 6% of the total FDI inflows in rupee terms. States that usurp this pie are led by Maharashtra (32%), NCR (18.2%), Karnataka (7%) and Tamil Nadu (6%). Further, a total of 40 proposals involving FDI worth Rs.1, 498.51 crore was recently cleared by the Finance Minister, following recommendations from the Foreign Investment Promotion Board (FIPB). It includes Suzlon Energy (Rs 1800 crore), TPG India (Rs 806 crore) and Pepsico India (Rs 249 crore). FIPB is a body that recommends FDI proposals,that are not routed through the automatic path, to the Finance Minister. There are various FDI proposals pending FIPB or CCEA approval. Considering the fact that growth is slowing down, the government will be under pressure to expedite things to clear more FDIs to bolster the growth particularly the infrastructure sector. There are other sectors which may be opened for FDI such as defence and education. The government will carry on reforms but then country is going to elect new government next year and it also depends much on the new government and its stability. Since FY06, there has been an unmistakable boom in investment. Two indicators tell the story. The saving rate and the investment rate in FY04 were 29.8% and 28.2% respectively. According to estimates made by the Economic Advisory Council to the Prime Minister, they would be 35.6% and 36.3% respectively by the end of FY08. The savings rate is expected to decline to 34% in FY09, according to the CMIE. This is significant because developed countries like the US are witnessing negative savings rates. Unlike countries like Japan and China that are dependent on exports to the US and Europe, India is a domestic economy. Barring IT sector, India has very low dependence on the US. There are international players who see huge growth potential in India and are set make investment in India unperturbed by the slowdown concerns.

Deepak Tiwari Research Analyst

We see fanatic selling pressure these days. We reiterate our view about the strong fundamentals of India which is the bottom line of the report. FIIs will return to the Indian markets once the dust settles.

[email protected] T: + 91 22 4063 3032

Nov 6, 2008

For Private Circulation only

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FIIs trading activities in equities and debt during 2008 Net investment in Rs crore

Month

Equity January

Debt

-17226.9

1965.2

5419.9

2496.8

124.4

-879.7

April

979

-1701.7

May

-4917.3

-162.9

June

-10577.7

-826.9

July

-1012.9

3594.8

August

-2065.8

1188.7

-7937

3090.4

October

-14248.6

-2047.5

Net investment so far in 2008

-51462.9

6717.2

February March

September

FIIs trading activities in equities and debt since 2000 Month

Net investment in Rs crore Equity

Debt

2000

6370.5

22.8

2001

13294.7

119

2002

3627.23

64.86

2003

29953.2

4939.74

2004

38688.4

3113.2

2005

45825.6

-5105.4

2006

31281.08

3629.18

2007

70940.05

9149.13

Source: Moneycontrol, Artha Money Research

Nov 6, 2008

For Private Circulation only

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FDI equity inflows in India since 2008 Amount of FDI Inflows Month

in US$ billion

in Rs crore January

6,960

1.77

February

22,529

5.67

March

17,932

4.44

April

15,005

3.75

May

16,563

3.93

June

10,244

2.39

July

9,627

2.25

Total FDI till July 2008

98,860

24.20

Total FDI in corresponding period in 2007

51,969

12.16

90%

99%

Growth over last year (%)

FDI equity inflows in India since FY 2000 Amount of FDI Inflows Financial Year %age growth over previous year

in US$ billion FY 2001

4.03

-

FY 2002

6.13

52.1%

FY 2003

5.04

-17.9%

FY 2004

4.32

-14.2%

FY 2005

6.05

40.0%

FY 2006

8.96

48.1%

FY 2007

22.08

146.4%

FY 2008

29.89

35.4%

FY 2009 (till July)

12.32

FDI equity inflow grew astronomically by 146% during FY07 but tapered down to 35% in FY08. Till July itself, it has touched US $ 12.3 billion.

Sectors attracting highest FDI equity inflows

Rank

Cum. Inflow during April 2000-July 2008

FDI equity inflow during AprilJuly 2008

% age to total Inflows (In terms of rupees)

62,381

6,684

20.97

1

Sector Services Sector (financial & non financial)

2

Computer Software & Hardware

36,809

4,642

12.37

3

Construction

19,606

6,224

6.59

4

Telecom

18,043

1,295

6.06

5

Real Estate

16,642

5,480

5.59

6

Power

11,754

2,124

3.95

7

Automobile

11,648

1,792

3.92

8

Metallurgical Industries

10,556

3,208

3.55

9

Petro & Gas

8,509

263

2.86

Chemicals other than Fertilizers

7,401

1,261

2.49

10

Nov 6, 2008

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Of late, the sectors that have attracted FDI more than the others included financial and non-financial services sector followed by construction, real estate and IT.

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Top investing countries FDI equity inflows Month

Cum. FDI Inflows since 2000 Share in Cumulative Inflow since 2000 (%age to total FDI in Rs terms)

in Rs crore MAURITIUS

129,372

43.5

SINGAPORE

24,213

8.1

U.S.A.

23,901

8.0

U.K.

21,048

7.1

NETHERLANDS

13,701

4.6

JAPAN

9,925

3.3

GERMANY

7,966

2.7

CYPRUS

5,884

2.0

FRANCE

4,482

1.5

U.A.E.

3,541

1.2

Total FDI Inflows in Rs crore Total FDI Inflows in US $ billion

244,033 75

Source: Department of Industrial Policy & Promotion, Artha Money Research

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