Investment by foreign institutional investors (FIIs) in India in 2011 is going to see a three-year low because of uncertainty in global economy and slowdown in the Indian economy.
FIIs have made a net investment of Rs 20,744 crore during the January-October period in the calendar year, which is far less than Rs 1,55,250 crore invested in the same period in 2010, according to the Securities and Exchange Board of India.
Next year India may attract more funds from FIIs as inflation and interest rates are expected to soften. The rupee is also expected to stablise in the next year. “Weak sentiments among investors due to uncertainty in global economy and slowdown in Indian economy are the major factors for weak fund flow,” said Raamdeo Agrawal, joint managing director, Motilal Oswal Financial Services. “However, next year we may expect better inflows from foreign investors as interest rate cycle is about to reverse and rupee is expected to stabilise around 50 in the next six months, which augurs well for Indian companies and economy.”
In 2009 foreign investors invested Rs 73,096 crore in January-October period, while in 2008, their investment turned negative as they withdrew Rs 45,209 crore in the same period.
In order to control inflation, the Reserve Bank of India hiked interest rate 13 times since March 2010 which made funds costlier for Indian companies and led to the slowdown in the industrial demand. But experts see interest rates coming down in next financial year which will fuel up the industrial demand.
“We may see rate cuts in the next financial year,” said Anis Chakravarty, an economist and director at Deloitte.
Since January Sensex has declined by 26%, while rupee has depreciated around 20%.
“With the kind of corrections we have seen in the market in the recent past, the valuations have become very reasonable for foreign investors” said Agrawal.