Unrealistic valuations seen hitting FDI

Portfolio investment inflows are heady, but FDI – the kind that helps build businesses rather than drive up stocks in the market – is not as hot as it is in India as in rival economies like China, a leading fund expert said on Monday.

India, seeking foreign capital to build its economy, is grappling with a puzzle.

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Portfolio investment inflows are heady, but foreign direct investment (FDI) – the kind that helps build businesses rather than drive up stocks in the market – is not as hot as it is in India as in rival economies like China, a leading fund expert said on Monday.

“Long term capital is still not here and it is due to a mix of reasons,” L. Brooks Entwistle, CEO of Goldman Sachs, India, said at a seesion titled, "Bucking the Trend: Growth Opportunities in India" at the India Economic Summit, jointly organized by the Confederation of Indian Industry and World Economic Forum.

Unreal valuations and a lack of infrastructure, besides gaps in financial reforms have been identified as creating obstacles in the way of FDI.

India’s accumulated FDI since 2001-02 stood at $120 billion with an average of $30 to 35 billion per year.

Ashok Aram, managing director, Abraaj Capital, UAE added that roads, ports and electric supply would be key in attracting FDI. “The country has been attracting $30-35 billion FDI on an average every year, barring a few years while India with its size should have over $100 billion worth FDI annually,” Aram said.