The Inflow Endeavour

The sensitivity of the Indian economy to foreign fund inflows is high. We see jerky reactions with any change in the status of the flow of foreign funds. Just the day before yesterday we saw an attempt to increase investments in India by tightening liquidity. Yesterday, the government announced a series of measures by easing Foreign Direct Investment (FDI) caps in 13 sectors in an attempt to keep the money flowing into India.

In a meeting of senior cabinet ministers, Prime Minister Manmohan Singh raised the FDI cap and changed the cap for the automatic route of investment for various sectors. The cap was raised to 49% from 26% in insurance, to 100% from 74% in telecom and to 100% from 74% in asset reconstruction companies. Allowance of FDI through the automatic route instead of through FIPB was allowed to a larger extent in the sectors of petroleum, gas refineries, commodities-stock-power exchanges. Norms were also eased for credit information companies.

All these measures are likely to attract investments in India. The initiative has been a big step towards boosting growth. However, more clarification would be needed on these amendments to ease implementation.

Although the slew of reforms domestically is likely to develop positive sentiment, globally the mood is rather subdued. Investors have been speculative about Federal Reserve Chairman Ben Bernanke’s two-day testimony to Congress that begins on Wednesday. A close eye is being kept on developments on this front and for clues on the future of quantitative easing.

While the mood is surrounded by uncertainty, indices in the US were weighed down by poor earnings from Yahoo and Coca-Cola.

Europe too was low there was an unexpected drop in German investor confidence data. The ZEW economic sentiment indicator dropped to 36.3 points in July 2013 from 38.5 in June 2013.

Asia too has seen a lower opening. The Nikkei, Hang Seng and Shanghai Composite are trading lower by 0.92%, 0.03% and 0.37% respectively. The Asia Dow and Singapore are trading lower by 0.04% and 0.40%.

Global and domestic cues are at two ends. While India is making attempts to invite funds from foreign countries, globally the mood is subdued. A positive opening is expected on the Indian markets today. The fact that the government is putting in efforts towards revival will add to positive sentiment.