Long term foreign investors seem to be regaining confidence in India, according to the latest FDI or foreign investment numbers.
After falling by a drastic 32% during the first three months of 2011, foreign direct investment (which excludes stock market) has risen 77% in the first two months of the financial year.
FDI is considered the real indicator of whether or not foreigners believe that India will do well economically in the coming years. Unlike investment into stocks (FII investment), FDI investments tend to remain ‘locked in’ for years, if not forever. As a result, while foreign investors pour in billions of dollars into the stock market, they tend to think hundred times before investing directly into companies through the FDI route.
For April and May this year, India saw a foreign investment (FDI) inflow of $7.785 billion, an increase of around 77% over the FDI equity inflows of $4.392 billion last year.
Foreign investment or FDI numbers had started causing concern in New Delhi after they stopped growing last year. FDI had growing in leaps and bounds to reach around $25 billion three years ago and have remained at that level ever since. However, during the just concluded year, they dipped 25% to around $19.4 billion.
At the rate at which FDI has come during the first two months of this year, the full year may see a total of $46 billion — more than double what India saw last year.
Some of this increase has been due to big bucks merger and acquisitions, the commerce ministry pointed out.
“.. the proposed tie-up between BP and Reliance, with a likely FDI of over US $ 7 billion, could possibly be the single largest FDI into any emerging market. Similarly, Vodafone’s purchase of Essar’s stake, at around US $ 5 billion, is also an indicator of continuing investor confidence in India.
“The approvals given to POSCO and to the Cairn-Vedanta acquisition (a deal of around US $ 8 – 9 billion) are also likely to substantially increase FDI this year,” it said.
May saw the second largest monthly inflow of FDI in the last ten years, clocking $4.664 billion.