Structural economic growth seen luring FIIs

The structural growth in the Indian economy is what is attracting foreign institutional investors (FIIs) to increase their exposure to Indian equities.

Jonathan Boyer, Managing director, Boyer Allan Investment Management Ltd, a UK-based hedge fund, said on the sidelines of the FICCI Annual global conference on Capital markets, "India has witnessed impressive growth in the past few years and is now arguably the most efficient among Asian markets."

The Boyer Allan fund has launched an India-dedicated fund, which has already mopped up $50 million. "We are confident that once the corporate investment cycle kicks in, that there will be a new leg of growth beginning to unfold and investors will take a long term view on Indian markets," added Boyer. The India-dedicated fund is expected to touch $100 million by the middle of next year, he said.

The Indian equity markets with a market cap of Rs 300 billion and a robust futures and options market with turnover of over Rs 5000 crore daily allows an efficient risk management toll for absolute return investors ( the hedge funds) to be active in India, added Boyer.

However, further regularisation of the tax regime and simplification of the bureaucracy of investing in India were mooted as the most important requirements for further attracting investment to India.

At the conference it was suggested that alternatives to the Mauritius route of investments for non-domestic participants to invest in the Indian economy should be explored to make India a better investment destination.

Milind Barve, managing director, HDFC Asset Management company, said reforms in pension fund is essential to improve the depth of the market and the presence of long-term pension money will help in this regard.

"It is strange that our provident fund money is managed by the government and the government invests this in its own paper," he said.

"The Indian markets still lacks depth and liquidity in absence of enough institutional investors. It's the depth and the liquidity in the markets, that will attract more and more foreign investors to invest in India," Barve added

Pulak Prasad, managing director, Warburg Pincus India said, "India needs more of foreign direct investment than foreign portfolio to create an asset class among the investor community. The government should not differentiate between FDI and FII investments, but on the other side, the government has made FDI investment extremely difficult."

Ajit Dayal, chairman and executive director, Quantum Securities said, " The India growth story is not momentum-based but secular and the reforms process is here to stay is the message which needs to be sent to the foreign investors. The perception of Indian markets vis-a-vis other emerging markets needs to be changed."

He strongly recommended allowing de-linking of distribution and fund management of fund houses. He also mentioned that Quantum Advisors has applied to Securities and Exchange Board of India for starting an asset management company.

While the India growth story was endorsed by most investors in the last two days, there are few structural issues such as depth of the markets, key infrastructure, and clarity from the government on certain issues such as tax structure is what the foreign investors are keen to get addressed.

Dipti Neelakantan, chief operating officer, Morgan Stanley Pvt Ltd said, "While there is a great amount of interest with Indian markets being recognised globally, it's the inflexible rule and clarifications, lack of flexibility to structure products and lack of liquidity that baffles foreign investors."

Chairing the discussion, Naina Lal Kidwai, deputy CEO of HSBC, said it is pertinent to note that even though FIIs continue to hog the largest chunk of IPOs, mutual fund investments are now significant in the book building process. "Gone are the days when LIC and UTI were sought after to make IPOs successful," she said.