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Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster
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Investment revival 3 years away? 
(Fri, 16 Nov Pre-Open) 
 
India's growth prospects have been fading for some time. Multinationals walked away from the country, withdrawing some US $ 10.7 bn worth of investments in 2011 alone. In order to encourage more foreign inflows the Indian government has undertaken a series of economic reforms. The government's recent reforms include allowing FDI in multi-brand retail, aviation and broadcasting, hiking diesel price, capping the number of subsidised LPG cylinders, opening up pension sector to foreign investment and raising the FDI cap in insurance to 49%.

In spite of the reforms, Indian economy is not likely to see a quick turnaround and growth rate is expected to revive modestly from the first half of next year. According to a report by Credit Suisse, the impact of recent reforms will have no impact on the investment cycle at least in next 3-4 years. This is due to lack of reform activity in the last 8 years. Investments worth Rs 1 trillion have been stalled in the past many years due to a complete policy inertia and lack of regulatory and forest approvals.

While reforms have started well, and arguably reduced tail risks for the economy, they need to be sustained in order to lead to a more meaningful improvement in the business cycle For reviving the investment cycle, there should be another policy push to speed up environment clearance, address the land and fuel related issues.

Despite all the gloom and doom, we may have hit a turning point in India. But everybody is still cautious. On the margin, things are improving and decisions are being taken. The quarter ended September 2012 was the first in the last six where corporate earnings came in higher than estimates. Yet, domestic investors are redeeming funds and most of the smart global money is not yet buying into the India growth revival thesis. India has gone through a painful two-year cycle of negative revisions to economic growth, earnings estimates and investor perception of the country. While reforms were a welcome move, the general feeling is there is a long way to go before the economy could be on a revival mode.

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