India's stock markets on Wednesday gave a muted response to the government's action packed reforms initiative taken on Tuesday raising foreign direct investment (FDI) caps in a range of sectors, including telecom, 'state-of-the-art' defence production and insurance, eased norms in many others aimed to spur investment and stem the rupee’s slide.
The 30-share Sensex was hovering below 20,000 in early trade - up by about 80 points. Analysts said foreign funds were keenly watching for cues from US Federal Reserve chairman Ben Bernanke on a possible timeline on winding down of the monetary stimulus programme amid incipient signs of resurgence in the US economy. Bernanke is scheduled to testify before a US Congress Committee later in the evening on Wednesday, at about 7.30pm IST.
Equity market analysts said investments flowing in from actual deals following India's overhaul of the FDI policy may still be a few months away.
The FDI cap in telecom sector has been raised to 100% from the present 74%.
On defence production, the Cabinet Committee on Security (CCS) will approve proposals on case-to-case basis beyond the existing 26%, which are likely to result in “access to modern state-of-the-art technology in the country.”
The decision to overhaul the FDI policy, broadly based on recommendations made by economic affairs secretary Arvind Mayaram-headed committee, was taken in a meeting chaired by Prime Minister Manmohan Singh with his senior cabinet colleagues on Tuesday.
The government has also decided to raise the FDI cap in the insurance sector to 49%, subject to legislative amendments by Parliament.
Besides raising caps in several sectors, the government has also eased norms allowing FDI to come in through the automatic route.