Foreign Investment in India

The article “Indian firms’ foreign ownership at its peak” talks about foreign ownership in listed Indian firms. According to the analysts the foreign ownership has reached its peak and is expected to rise further as corporate profitability grows. However, factors such as high inflation and corruption may result in overseas investors being careful with their actions. As a result of year 2010, foreign institutional investors (FIIs) shareholding rose to the highest level since Indian markets opened up to foreign investment in 1993.

In addition, strong corporate earnings had made India the top investment destination in 2010. As India is the second fastest growing major economy in the world after China, it is likely to attract higher investments in the future. Although the growth potential outlook for India remains positive, it is susceptible to correction due to is top priced trading compared to other markets. The threat of high inflation and rising crude prices resulting in a slow-down of growth and corporate profitability has affected the foreign investors action. The moderation in foreign flows has led to a decline in stock prices.

An increase in FII shareholding was detected in sectors, such as consumer goods, pharma, metals, large software firms and telecom service providers. In banking and financial industry, however, the FIIs stakes were lowered as well as in most construction firms. The trend in foreign inflows in the future will depend largely on whether macroeconomic concerns such as inflation abate as well as on policy initiatives in the national budget to be tabled in Parliament next month. According to the article, investors remain careful with their action in the mean time until policy cues particularly around the budget are solved.