Manmohan Mania Spins A Positive Effect

On the resignation of Pranab Mukherjee on June 26, 2012, Prime Minister Dr Manmohan Singh took over the job of handling the finance portfolio and its effects were seen aggressively over the first week of him handling the ministry. Globally, investors regained some of their lost confidence as the PM Dr Manmohan Singh almost immediately logged on to the long-pending issues and addressed them, ensuring promising work on a reforms’ level. It was an earnest desire on the part of investors that the government take strong steps to revive the economy and also work on the structural deficiencies that have been shooing foreign investors away.

With an aim to encourage foreign inflows to boost domestic strength, Indian Prime Minister Dr Manmohan Singh has proved that he is not a noob at this game. On Day 1, his speech on reviving animal spirits in the economy and reversing the pessimism worked instantly in sowing positive sentiments across various groups. Addressing the rapidly depreciating rupee was at the top of the priority list and encouraging foreign inflows was the key to stabilising the balance of payments. Quick steps were needed on issues that had been surrounded by inaction.

The government has been acting quick on the retail FDI front and has been negotiating terms on issues like sourcing and brand ownership. A relaxation in norms is expected to favour investments from brands like IKEA which are keen on setting foot in India and which have been welcomed by both the government and the markets. IKEA plans to invest a sum of 1.5 billion Euro. If the investment decisions send out a good vibe, it will invite further flows like Coke's plan to invest USD 5 billion by 2020.

The introduction of GAAR and postponing its implementation was perceived negatively by foreign investors and MNCs too alluded to the aggressiveness of the application of transfer pricing rules. After Singh though, the prospective implications of GAAR are being seen as positive. When these policies are implemented, foreign flows would see further sustained inflow.

The positivity can be seen through various factors throughout the week of July 3-6. Since the beginning of FY 2012-13, foreign inflows have been negative for equity investments, other than in the month of June 2012 which were at a mere Rs 133.5 crore. Last week saw the net foreign inflows in equity investments summing up to Rs 5,212 crore. During the same period, the FIIs made gross purchases of Rs 17,047.5 crore and gross sales of Rs 10,957.1 crore, according to data sourced from the SEBI.

The currency too has been subtle on its aggressive upward trend and was hovering in the 54-55 per USD range during the aforementioned week from the unsustainable USD 57 level seen in the previous week. Announcements on reforms, intentions to bounce back and bringing into light issues that saw inaction have been resulting into better figures on the inflow and currency fronts but what will ultimately make the difference and bring out stable and continual inflows is the implementation of these plans.

Regardless of being called Manmohan an 'underachiever' by Time Magazine, figures tend to speak more than a bunch of words. Evidence gallantly stands in the amount of action taken within a week, inflows resulted and the thinking that goes into reviving animal spirits. 

Net FII Inflows in Equity July 3-6, 2012

FII Inflows FY 2012-13

INR/USD July 3-6, 2012