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S BHANDARI
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Managing Director,
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| Prudential ICICI AMC
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| With over Rs 16,300 crore of equity inflows in the calendar year (up to October 9), the fact that India is a red hot destination for investors is not in doubt.
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| What has been amazing is the sheer quantum of foreign institutional investor (FII) inflows, with the first nine months of 2003 already crossing any full year prior to this.
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| While this tempo may be a little difficult to sustain, the underlying trend is extremely strong.
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| To start with, FII interest in India is not a new story. They have been consistent long-term investors in our markets.
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| In fact, in the last 11 years since they have been permitted to invest in India, FIIs have been net sellers in only five out of the 43 quarters covered.
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| Importantly, they have been net buyers of Indian equities across all economic, political and stock market conditions.
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| FIIs have had good reasons of late to be so positive on India. Purely in terms of market movements, India has been one of the best performing markets.
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| The benchmark S&P CNX Nifty is up by almost 30 per cent (yield to maturity September 30) of which the September quarter alone has contributed to around 25 per cent.
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| Comparatively other markets have lagged, especially in the last quarter where the developed markets have barely moved (the Dow Jones Industrials is up only 3.2 per cent, and the FTSE 100 is up by just 1.5 per cent for the quarter).
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| Even compared with other emerging markets, India has had a great quarter, with the MSCI Emerging Market Index up only by 13.5 per cent for the quarter.
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| The fundamentals, too, have been positive. With current forecasts of gross domestic product (GDP) growth in excess of 6.5 per cent, India will be one of the fastest growing economies this year.
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| Corporate India is getting its act together, with operating margins at a very healthy 16 per cent for FY 2003 (compared with 14 per cent in 2002 and 12 per cent in 2001).
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| Net debt to equity is down to 25 per cent in FY 2003 (against 35 per cent and 44 per cent, respectively in 2002 and 2001).
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| Most importantly, return on equity for FY 2003 at 25 per cent is not only substantially higher than the cost of capital, but is a clear breakout of the range of 15 per cent-19 per cent that we have been seeing for the last five years.
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| Over the last decade, with the opening up of the Indian economy, corporates have been forced to improve quality to globally acceptable levels.
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| After years of somewhat painful restructuring, Indian companies are poised to reap the benefits of any pick-up in domestic and overseas demand. All this is of course being aided by interest rates, which are at historic lows.
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| Will FII inflows continue? There seems to be no reason to believe otherwise. Can they slow down next quarter? Insofar as a runner needs to pause to draw breath, investors also need to reassess.
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| Simplistically they also need to pause for vacations, etc as we approach December. However, any such slowdown, if it occurs, is likely to be temporary, as long as we continue to get our act together as a country and as an economy.
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| A compelling destination
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SANJAY PRAKASH
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Chief Executive Officer,
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| HSBC Asset
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The momentum of inflow from FIIs remains strong and stood at $855 million for September 2003
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