India- An Attractive Destination for FIIs Investment

2010-03-07T09:02:00.000-08:00

American and European economies are stuck in a condition of too much capital chasing too few opportunities. Hence, they will do well to consider regions of the world where economic growth have a greater potential. Obvious candidates include China and India, the two largest countries by population.

The Indian economy is amongst the largest emerging market economies (US$ 1.22 trillion) with amongst the most attractive growth opportunities globally. Around 80%-85% of India’s aggregate demand is domestic driven. As the Indian growth engine powers ahead, more and more overseas investors are looking at investing options in India. Improving macroeconomic fundamentals and greater integration with the world economy have increased India’s global competitiveness, placing the country on the screens of investors all over the world. The market infrastructure, regulatory institutions and corporate governance are quickly catching up to standards of the developed nations.

Perhaps the most noticeable of many factors working in India's favor is the simple fact that English one of the official languages of the country. That may seem to some little more than a triviality. But the importance of English usage in international trade cannot be underestimated. And trade with North America and Europe can only hasten the modernization of any less developed country. Indeed, one of the burgeoning industries in India - business process outsourcing - depends heavily on facility in English on the part of Indian service suppliers. We even have Indian nationals schooled in North American dialects, the better to operate call centers from that faraway country. Indian companies need to join forces to better promote and market their services abroad.

India is the only developing country in the world with a huge, highly educated, English-speaking labor force available at a fraction of the cost of labor in most western countries. Furthermore, India has promoted the channeling of its educated population to the knowledge-based field of information technology services. A plus is its ability to produce goods and services at lower costs.

International investors can take confidence in India's modem and well-run stock markets. In fact Mumbai boasts of one of the oldest stock markets in the world. Until recently, Indian stock markets instilled little confidence among foreign investors, as settlement could take weeks. But at government insistence, these institutions now operate efficiently and similarly to their North American and European counterparts. Over the years, investment-industry regulators have made great progress in the development of smoothly operating and transparent capital markets.
Over the next two decades, the country’s middle class will grow from about 5 percent of the population to more than 40 percent and create the world’s fifth-largest consumer market. More than half of households will be middle class by 2016 .The high-income segment will triple by 2016.

What we also observe is that companies are increasingly becoming global in focus, competitive and are scoring well in innovation and sophistication of operations and adoption of the latest technologies.

However, recently, the resilience of India’s growth story has been challenged by various factors, global as well as local. The credit-risk crisis emanating from the US sub prime collapse has led to re-pricing of risk globally. The Indian equities market, being exposed to global investors, also experienced this wave of risk-aversion.

Despite these challenges, one expects India to retain its position as the second fastest growing economy in the world, second only to China. India is one of the few economies growing at 5%+ levels making the country a real opportunity for investors looking for sustainable returns in the medium to long term period.

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India- An Attractive Destination for FIIs Investment