The finance ministry has received feedback that the Indian capital markets could witness $20-25 billion inflows on the pessimistic side and $80-90 billion on the optimistic side in the next two years, from the newly announced category of qualified foreign investors (QFIs) route. QFIs include foreign individuals, groups and associations.
This was an input the ministry received from qualified depository participants (QDPs), through which QFIs would be allowed to invest, Thomas Mathew, joint secretary in the capital markets division of the finance ministry said on Thursday. He clarified these are not the estimates of the finance ministry, but were given by QDPs at a recent meeting. If this sum of money on the optimistic side does come in the markets in the next two years, it would help stem the depreciation of the rupee, analysts said.
However, the sum on the optimistic side is much higher than recent inflows from foreign institutional investors (FIIs) into the Indian equity markets. Till June 7, FIIs have net invested $12.30 billion in the capital markets. They had invested a net of $8.29 billion in 2011, $39.47 billion in 2010 and $8.65 billion in 2009.
When asked about the rationale behind the numbers, Atul Gupta, managing director of custodian QDP, Orbis Financial Corporation Ltd, said it was very difficult to gauge the numbers. But, if global financial conditions settled down, $60-80 billion could come from QFIs in the next two years, he said. Elaborating, he said the total market capitalisation currently stands at $1 trillion and QFIs are allowed to invest up to 10 per cent of that, which makes it $100 billion. If one adds the mutual funds route and disinvestment by the government, $120-130 billion could be the rough investment limit in the capital markets. Now, $60-65 billion is roughly half of that. “And, we are talking about investment in two years,” he added.
However, independent analysts questioned the figures, saying even the pessimistic estimate looks rather optimistic. “The numbers are achievable only if conditions in the Indian capital markets improve significantly,” Jagannadham Thunuguntla, strategist & head of research, SMC Global Securities Limited, said.
The roadshows in five Gulf nations, Saudi Arabia, Dubai, Kuwait, Bahrain and Oman, would be organised by the Department of Economic Affairs (DEA) in the Ministry of Finance from June 10 to 14. “Large houses in the Gulf are flush with funds and are looking at investment opportunities,” DEA Secretary R Gopalan said. Roadshows will go a long way in dispelling any wrong perceptions about India in the minds of investors. They will have one-on-one meetings with big investors and tell them about the strengths of the Indian economy. “They should look at medium- to long-term growth,” Gopalan said.
The Indian economy grew by a nine-year low of 6.5 per cent in 2011-12.
On the anvil are more roadshows, in Europe and the US. Investors in Singapore, Hong Kong and Japan, have also evinced interest in investing in India, officials said.
“We want to tell foreign investors that there is tremendous opportunity for investment in India. We will address their apprehensions, if any, about investments here,” he said.
Large fund houses in the Gulf have shown interest in investing in India, another ministry official said, adding government bonds are offering better returns here.
During the roadshows, the finance ministry would highlight the changes that had been brought in the QFI regime, the liberalisation of the external commercial borrowings (ECB) norms and measures taken to deepen India’s bond market.
Officials from the Ministry of External Affairs, Securities and Exchange Board of India, Reserve Bank of India (RBI), Bombay Stock Exchange and National Stock Exchange would also be participating in the campaign named - India as an incredible investment destination.
In a major initiative to attract foreign capital and stabilise the rupee, the government had, last month, permitted residents of Gulf nations and all EU states to invest directly in the Indian stock market. The decision to attract foreign capital came at a time when the government and RBI are making efforts to arrest the slide of the rupee, which touched a life-time low of 56.52 to a dollar recently.