Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Wake up to the FDI reality - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • Sep 16, 2003

    Wake up to the FDI reality

    India is gaining importance as one of the most promising emerging markets in the world and this can be observed from the rate at which foreign institutional investors (FIIs) are investing in the country from the beginning of this year. Even the MSCI index, which is a reference for FIIs investing in emerging markets, has upgraded India’s weightage in its emerging markets index. While these are good signs for the Indian stock markets, we must also understand that India, in order to sustain this kind of FII interest, has to do much more than what is being done.

    Current P/E ratios
    Kospi 50 11
    BSE Sensex 13
    Hang Seng 16
    Straits Times 18
    Set 50 (Thailand) 9

    While one may argue that the Indian markets seem undervalued as compared to its other South East Asian counterparts, we would like to point out that the ‘so called’ under valuation is not too large and that in some cases, it is overvalued! However, we would also like to point out that to a certain extent, there is a justification for the same. If one were to look at the broad economic policy reforms measures, nothing much has changed, but what has changed is the fact that the economic prospects are looking much better due to good monsoons as well as higher productivity of India Inc.

    Cumulative FDI inflows
    % of GDP 1990 2002
    China 7 36
    Hong Kong 270 266
    India 1 5

    What we are trying to indicate here is that in terms of economic reforms, we are way behind our peers in the region. This is indicated from the fact that FDI flows into India have been very poor in comparison to countries and regions like China and Hong Kong. We are stressing here on FDI because, for any emerging or developing country, FDI plays a vital role in the overall development of the economy. It creates employment as well as wealth for the citizens of the country, and has a cascading (developmental) effect on the economy. FDI also takes the burden off the government as far as stimulating growth is concerned.

    One may, however, counter-argue at this stage that, due to its lack of aggressiveness on the reforms front, India was spared from the South East Asian economic crisis that occurred in 1997-98. While the argument holds ground, what one fails to realise is that the countries that were affected by the crisis have recovered well from the same over the years and are now showing strong growth prospects for the future. It must also be noted here that post their reforms period, these countries have witnessed a strong growth in their economies. The strong FDI inflows have helped the development of these economies to a large extent. China is one of the prime examples of this phenomenon.

    Considering the above, India too needs more of economic and structural reforms to attract FDI into the country. Unless the government initiates more steps in the direction of labour reforms, fiscal discipline, disinvestment and making the country a more investment friendly destination, we will continue to languish and will have to be satisfied with GDP growth rates of 6%. It is time for the government to act!



    Equitymaster requests your view! Post a comment on "Wake up to the FDI reality". Click here!


    More Views on News

    Insider Leaks Equitymaster Stock Picks (The 5 Minute Wrapup)

    Jul 25, 2017

    Equitymaster HQ has been infiltrated. Valuable stock ideas have been leaked. Who's responsible?

    Raymond and Other 'For Profit' Companies Who Don't Care about Shareholder Returns (The 5 Minute Wrapup)

    May 27, 2017

    What happens when minority shareholders are short-changed in the normal course of business?

    Why Commission Driven Model In Mutual Funds Should Be Eliminated... (Outside View)

    Feb 15, 2017

    PersonalFN believes SEBI has taken a step back-apparently in the admission of it going overboard with the regulations.

    This Book Changed How I Looked at the World of Man and Money (Vivek Kaul's Diary)

    Aug 24, 2016

    And here's your chance to claim a free copy of this book...

    The Developed World is Dying because of Demographics, Debt, and Deflation (Vivek Kaul's Diary)

    Aug 12, 2016

    And Why India's demographic dividend could turn out to be a doubtful debt...

    More Views on News

    Most Popular

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    The Most Important Innovation in Finance Since Gold Coins(Vivek Kaul's Diary)

    Aug 10, 2017

    Bill connects the dots...between money and growth, real money and real resources, gold and cryptocurrencies...and between gold, cryptocurrencies, and time.

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    Bitcoin Continues Stellar Rise(Chart Of The Day)

    Aug 10, 2017

    Bitcoin hits an all-time high, is there more upside left?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms