These are unbelievable times. Despite the ongoing public health crisis, which seems to become more severe by the day, India attracted a mind boggling $20 billion of FDI (foreign direct investment) in the past few months. To take advantage of the inexplicable scenario, the government hiked the FDI limit to 74 per cent in defence and invited American firms with open arms in sectors such as healthcare, infrastructure, energy, civil aviation, and insurance.
Investors too seem to look ahead, beyond the next few quarters, which may explain the continuous upward march of the stock indices. Gold, as usual, has acquired a new glint as the risk-averse seek the sanity of safety. The changes in the FDI arena may aid equities, as also other segments in the financial sector – mutual funds and general insurance. It looks like an opportune time to make a killing. But possibly, only in the short run. Those with a longer-term vision need to be careful.
The commonsensical reason: Markets do not necessarily reflect the current situation. They give a glimpse into a future, which looks rosy but can be discoloured by unpredictable events. It is crucial to always remember that one or two positive factors do not make a country’s story. The future of ‘India Story’ will depend on a slew of trends that are consistent, continuous, and are backed by a conviction. At present, the various trends do not warrant such conclusions.
For example, there are strong hopes that India can attract higher FDI and foreign portfolio investments (FPI) in the near future. However, this will be largely due to global factors like a weak dollar that usually results in an outward rush of American investments. The rising political sentiments against China boost inflows into an alternative factory to the world, India. Our close links with Silicon Valley yields dividends despite the US visa restrictions on software manpower.
Look at the other side of the investment coin, and the narrative changes dramatically. One of the key Indian magnets that attracted foreign dollars is the Jio platform of the Mukesh Ambani Group. In 12 doses in 10 weeks, it drew funds from Facebook (largest minority shareholder), Google, Silver Lake Partners, Vista Equity Partners, General Atlantic, KKR, Mubadala, Abu Dhabi Investment Authority, TPG Capital, L Catterton and Intel. It raised Rs 117,588.45 crore selling 25 per cent share in Jio.
While this is impressive, it is a case of one company that offers web-telecom solutions, which managed to woo investors. This does not reflect on the capabilities of other Indian companies. We have our share of corporate laggards in areas such as product development, technology, and import substitution. To match the brilliance of Reliance Industries and Jio – the scrip zoomed from under `900 in March to over `2,000 – India Inc needs to do a lot before it can work the same magic.
In the stock market, the foreigners were net sellers in the past two years, and the first part of this year. There are signs that they have re-discovered value in Indian stocks. However, only sustained inflows will prove this premise. The world does not see us the same way we see ourselves. Gerry Rice of the International Monetary Fund said India needs further reforms to attract investments. Moody’s downgraded India’s sovereign rating to Baa3 from Baa2 with a negative outlook.
On a happier note, IHS Markit Purchasing Managers’ survey predicted a growth momentum for the Indian economy in the second half of this year. It concluded that the GDP growth will spurt to 6.7 per cent in 2021-22, or a figure that is higher than the one in the pre-COVID period. Such a fortuitous change is still not enough to realise Prime Minister Narendra Modi’s dream of Atmanirbhar Bharat. The government must urgently incentivise manufacturing and technology upgradation. Mere liquidity support is not enough.