FIIs skeptical India growth story will remain intact

Finance Minister Pranab Mukherjee tried his best to project an optimistic picture of the economy, but foreign institutional investors were not quite convinced about the India growth story.

Fund managers who interacted with the finance minister today said the government had standard replies to concerns on inflation, deficits, growth and governance. In the interaction moderated by ICICI Bank CEO Chanda Kochhar, Mukherjee urged FIIs to “take a long-term view of the economy”.

In the meeting with more than 30 leading Indian and foreign institutional investors, the finance minister said inflation “is likely to moderate in the months ahead especially as the monsoons are expected to be normal strengthening the economic prosperity of the farmers.”

Adviser to finance minister, Omita Paul, finance and revenue secretary Sunil Mitra, disinvestment and expenditure secretary Sumit Bose and chief economic advisor Kaushik Basu represented the government at the meeting, while officials of Morgan Stanley, Franklin Templeton, Sundaram Mutual Fund, Birla Sun Life insurance, ICICI Securities, among others, represented the private sector.

Stock market analysts say that despite negative market sentiments after several scams and political situation in the country, FII sentiment was strong about the India growth story. However, headline inflation, which has been above 8 per cent since last year, growing interest rates and as a consequence, moderating growth has had a negative impact on the overall FII flows. In the current calendar year, according to experts, almost $750 million has been the net outflow so far.

FIIs have invested over $3.2 billion in the Indian markets, majority of which is in debt instruments.

“Inflation is the most worrying part for the FIIs. Major talking point among FIIs right now is slowing growth in the country, the only factor which was working in attracting FIIs to India,” Jagannadham Thunuguntla, Strategist & Head of Research at SMC Global Securities said.

Elaborating on economic indicators, the finance minister expressed confidence that the Centre would be successful in reining in fiscal deficit to the targeted 4.6 per cent in the current financial year. “The provisional figures for 2010-11 have given us strong reason to be hopeful in this regard,” he said. Earlier, government officials had indicated that there might be a shortfall in revenue collection due to high refunds this year — expected to be around Rs 1 lakh. The finance minister, however, maintained that the revenue collection “is not likely to see any decline”.

In fact, even if the need arises for additional fuel subsidy, “funds would be committed with least impact on the fiscal deficit,” Mukherjee said. He said the economic growth of the country in 2011-12 could be around 8.5 per cent and the investors should take a long-term view of the economy instead of getting swayed by the short-term statistics. The government has also started working on financial sector reforms including widening and deepening of the Indian securities markets, he said.

Source: http://www.indianexpress.com/news/fiis-skeptical-india-growth-story-will-remain-intact/800702/2