The numbers first. Total foreign institutional investment flows into India have touched $16.5 billion for 2007, with over two and a half months to go. The previous record was $10.7 billion in 2005. This is the year India broke out of the $7-10 billion annual inflow range, maybe for a long time to come. This is no accident. The tipping point may have come sooner but sometimes emerging economies have to battle against the perception of cynics and sceptics till the evidence becomes so overwhelming that the floodgates open up. We are just talking about portfolio inflows into listed Indian stocks. The actual number, once you include foreign direct investment and private equity flows into unlisted firms, is much larger.
Many worry about the "quality" of this money. There is a debate on whether money from hedge funds and through participatory notes is making our markets more volatile and vulnerable to shocks. All this stems from a legacy of trying to "control" everything in this country, from the currency to capital flows. The colour of money is the same and it is naive to believe that a cross-section of investors will not try and cash in on the India boom. Having said that, I think it is only a matter of time before the rules of entry are tweaked. I hope it will be a tweak, and not a change.
Since September 1, $8 billion have come in; while it may be wishful to think that we have moved to a $50 billion annual run rate, my guess is that the next few years will surprise us. As they say, success has a hundred fathers. Also, the current flows may seem staggering in the context of our past flows, but may be less surprising seen in a different light. The economic story is well documented, what is less known is the extreme under-ownership of the asset class called India.
For every Fidelity and Capital that has bought in, there are dozens of money managers who do not own a single stock in India, or are woefully under-invested. They feel today what an Indian investor who does not own Reliance must be feeling.
(The writer is Executive Editor, CNBC-TV 18)