FIIs will sway to folk music

Robust economy and benign interest rates to keep institutional investors hooked.

The rural focus of the Budget seems to have caught the fancy of foreign institutional investors (FIIs). Reason: the growing purchasing power in the villages will accelerate the already robust economic growth.

Along with benign interest rates, this would translate into a steady growth in corporate earnings "� the single most important factor driving stock prices.

Since the last Budget, the Sensex has gained 54 per cent on Rs 12.8 billion inflows from FIIs. Since the bull run started in April 2003, the benchmark index has risen 252 per cent with FIIs pouring in $27 billion.

Star fund manager and managing director of Helios Capital Samir Arora said, "A country as large and complex as India cannot work without targeted intervention for the rural sector. For the next level of reforms, the government has to aggressively carry along the rural folks and that is why it is a good Budget."

He added that foreign inflows would remain strong this year too as more investors would be drawn in given that the proportion of global money into Indian markets was still marginal even as the growth story continued to be compelling in the context of emerging markets.

Calling it a great Budget, Andrew Holland, senior vice-president, DSP Merrill Lynch, said, "We are approaching a GDP growth rate of 9 per cent which is very good news. If we have seen about $30 billion from foreign investors over the past three years based on economic fundamentals, there is nothing in the Budget that could force them to change their stance after the Budget announcement today."

Fears of a mounting fiscal deficit becoming a cause for concern for foreign investors were proved unfounded.

Rashesh Shah, chief executive officer, Edelweiss Securities, said, "The fiscal deficit figure actually turned out to be a positive surprise. FIIs should not be worried about the deficit as the figure was on expected line. The fiscal situation is now stable. And there is no reason for foreign inflows to slow down."

Shiv Puri, managing director, Voyager Investment Advisors, said, "The Budget's focus on rural front as well as infrastructure is positive from a long term perspective. So foreign investors should continue to look at India favourably."

Experts said the economy has entered its second phase of growth, the first one being driven by declining interest rates, driven by increasing physical investments.

India is touted to the fastest growing economy in Asia over the next three years. While growth in outsourcing, whether it be in the technology or manufacturing, will be one of the major drivers, rising rural income and consumption with propel future growth.