FOREIGN DIRECT INVESTMENTS: THE TONIC FOR INDIAN EQUITY MARKET TODAY

The Indian economy is at a 6-year down level. The GDP has drastically reduced and so has the Indian equity market today. There are various economic indicators which show that the Indian economy has contracted at a very rapid rate in the past two quarters.

Some of them have even indicated that there are chances of recession. In case of the 2008-09 global recession, India was well prepared to tackle, but this time the situation looks different.

Some leading sectors of Indian economy at an all-time low, like the Indian Auto sector which is the fourth largest in the world in terms of total sales volume has been facing deep trouble for most of the year. Banking and real estate sectors also have a similar situation.

India’s exposure to global giants has increased significantly in the past few years. Many global brands have manufacturing and distribution facilities in the Indian sub-continent. But the falling GDP has made the conditions worse. It can result in large scale unemployment and thus further crashing of the economy.

The Indian economy relies on the flow of foreign investments into the Indian equity, especially in the auto, technology and oil and gas sectors. Healthy level of foreign investments will eventually result in economic growth and employment creation.

The Most Attractive Sectors For Investors

The government’s effort to improve ease of doing business and relaxation in Foreign Direct Investment norms is yielding results. This is justified by the fact that the net Foreign Direct Investments in India stood at 1.70 Billion $ in September 2019.

The telecommunications sector has attracted the highest FDI investment in India rated at 4.22 billion $ followed by the service sector at 2.79 billion $, computer software and technologies were standing at 2.224 billion $ and trading services at 1.13 Billion $.

During the first quarter, India received the maximum FDI inflows from Singapore at 5.33 Billion $ followed by Mauritius, Netherlands, USA and Japan.

Welcoming Investments

In India government permitted 100 per cent FDI under the automatic route in coal mining for open sale.

In Union Budget 2019-20, the government of India proposed opening of FDI in aviation, media and insurance sectors in consultation with all stakeholders. 100 per cent FDI is permitted for insurance intermediaries.

The government of India is working with stakeholders to further ease FDI in defense under the automatic route to 51 per cent from the current 49 per cent, in order to boost the make in India initiative and generate employment at the same time.

Investments / Developments

India is emerging as the Top receiver of FDI inflows. In October 2019, French Oil giant Total SA has acquired a 37.4% stake in Adani Gas for 810 Million $ Making it the largest FDI in India in the city gas distribution sector (CGD).

The National Capital Region (NCR) attracted FDI of $5.04 billion, the highest among all Indian states. However, Maharashtra, Dadra & Nagar Haveli, and Daman & Diu, which were at the top for FDI in whole of 2018-19, slipped to fourth position in the quarter with a total investment of $1.5 billion.

FDI And Changes In Economy

The Indian government is trying to achieve 100 billion $ of FDI foreign direct investment in the next 2 years. As per a global report the annual Foreign Direct Investment in the Indian equities is expected to reach 75 billion $ in the next 5 years. Despite the low GDP India has become the most attractive emerging market for foreign investors due to various factors.

2020 can thus prove to be a turning point in the Indian economy due to the sustainable amount of foreign direct investment and foreign portfolio investment that are expected in the Indian equities. There are various sectors that have good potential for investments in 2020. There can be various reasons for sectorial movements but FDI is amongst the most impacting reason these days.

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