The Associated Chambers of Commerce and Industry of India has predicted that the foreign institutional investment inflow into India will touch the $50 billion mark as compared to $40 billion in 2005.
Predicting a 'dream year' ahead for the capital market, Assocham said corporate stocks are still undervalued and positive corrections of government policies towards the stock market will continue to play a significant role to further increase FIIs exposure to Indian stocks by 25 per cent in 2006.
"The listed companies in private and public sector whose corporate governance will consistently show improvement will attract FII inflow in relevant sectors of Indian economy," the chamber remarked in its paper on FIIs inflow in Indian stocks.
The cumulative FII inflow till October 31, 2005 had reached around $40 billion from $4 million in 1992, reflecting the strong economic fundamentals of the country, as well as confidence of the foreign investors in the growth and stability of the Indian market.
This along with good macroeconomic fundamentals, growing industrial and service sectors let FIIs perceive great potential for investment in the Indian economy, according to the chamber's paper.
The number of FIIs had also increased, from negligible in 1992-93 to 528 in 2000-01 to 803 in 2005-06. The current calendar year also saw a rise in the number of FIIs registered with Sebi increase to 145.
The total number of registered FIIs as on October 31, 2005 was 803, much higher than 685 in 2004-05.
Many Japanese and European investors have also started eyeing India, aiming to cash in on the rising equity markets. Registrations from non-traditional countries like Denmark, Italy, Belgium, Canada, Sweden and Ireland are on the rise.
The California Public Employees Retirement System, the world's biggest pension fund with a base of $165 billion has recently decided to invest $100 million in India, thus adding India to their list of countries for investment.
FII investments have arrived as a safe and sustainable mechanism for funding current account deficits. Foreign investment both 'portfolio and direct varieties' can supplement domestic savings and augment domestic investment without increasing the foreign debt of the country, revealed the paper.
"Non-availability of good quality equities in adequate volume appears to impede FII flows. FII flows would be encouraged by greater volume of issuance of securities in the Indian market. This would be assisted by PSU divestment," Assocham said.
Lastly, it said that companies executing large projects in the infrastructure sector and telecom sector should be encouraged to access the domestic capital markets.
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