Trend of strong FDI to accelerate in coming quarters, note experts
Sep 9, 2024, 14:58 IST
With foreign direct investments (FDI) growing 47.8% to $ 16.17 billion during April-June 2024, India is expected to see further acceleration in the inflow on account of a potential Fed rate cut, modest growth outlook in the US, and the country's favourable economic outlook, experts say.
They also said that investment destinations have changed over the decade and have gotten more diversified, with capital flowing into new emerging sectors.
Compared to eight years ago, power, construction, healthcare, chemicals, and non-conventional energy have now been attractive investment destinations, Rumki Majumdar, Economist, Deloitte India, said.
"We foresee this trend of strong FDI to accelerate in the coming quarters. The anticipated US election results, a potential Fed rate cut, modest growth outlook in the US, and India's favourable economic outlook will likely attract global investors to India," she added.
Aakash Dasgupta, Partner, IndusLaw, said that while the FDI inflow seems to have jumped exponentially in the first quarter of 2023-24 in comparison to the same period in the previous financial year, it must also be remembered that FDI in Q1 of FY23 was particularly low.
FDI inflows were at $10.94 billion in April-June 2023-24.
He said that the current FDI inflows are closer to the numbers in the years preceding the last year. Hence, while the jump is significant in relative terms, it must be viewed as correcting back to previous levels.
"Irrespective, it's a positive indication and can be attributed to various factors, including deployment pressures mounting on the dry powder that foreign institutional investors are sitting on, performance of Indian capital markets in various sectors and favourable amendments to the FDI policy, such as allowing 100 % automatic route investment in the space sector," Dasgupta said.
With the US elections coming up, one may have to wait and watch the impact of FDI inflows over the next few months, but the overall outlook remains positive, he added. The government data showed that overseas inflows in May rose to $5.85 billion and in June to $ 5.41 billion from $2.67 billion and $ 3.16 billion, respectively, in the year-ago periods. In April, FDI inflows were down marginally at $ 4.91 billion against $ 5.1 billion in April 2023.
Total FDI, which includes equity inflows, reinvested earnings and other capital, grew by 28 % to $ 22.49 billion during the first quarter of this fiscal from $ 17.56 billion in April-June 2023-24.
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They also said that investment destinations have changed over the decade and have gotten more diversified, with capital flowing into new emerging sectors.
Compared to eight years ago, power, construction, healthcare, chemicals, and non-conventional energy have now been attractive investment destinations, Rumki Majumdar, Economist, Deloitte India, said.
"We foresee this trend of strong FDI to accelerate in the coming quarters. The anticipated US election results, a potential Fed rate cut, modest growth outlook in the US, and India's favourable economic outlook will likely attract global investors to India," she added.
Aakash Dasgupta, Partner, IndusLaw, said that while the FDI inflow seems to have jumped exponentially in the first quarter of 2023-24 in comparison to the same period in the previous financial year, it must also be remembered that FDI in Q1 of FY23 was particularly low.
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He said that the current FDI inflows are closer to the numbers in the years preceding the last year. Hence, while the jump is significant in relative terms, it must be viewed as correcting back to previous levels.
"Irrespective, it's a positive indication and can be attributed to various factors, including deployment pressures mounting on the dry powder that foreign institutional investors are sitting on, performance of Indian capital markets in various sectors and favourable amendments to the FDI policy, such as allowing 100 % automatic route investment in the space sector," Dasgupta said.
With the US elections coming up, one may have to wait and watch the impact of FDI inflows over the next few months, but the overall outlook remains positive, he added. The government data showed that overseas inflows in May rose to $5.85 billion and in June to $ 5.41 billion from $2.67 billion and $ 3.16 billion, respectively, in the year-ago periods. In April, FDI inflows were down marginally at $ 4.91 billion against $ 5.1 billion in April 2023.
Total FDI, which includes equity inflows, reinvested earnings and other capital, grew by 28 % to $ 22.49 billion during the first quarter of this fiscal from $ 17.56 billion in April-June 2023-24.
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During the period, FDI equity inflows rose from major countries, including Mauritius, Singapore, the US, the Netherlands, the UAE, Cayman Islands and Cyprus.