India has officially lowered its expectations of investment from foreign stock investors, which could translate into a tepid year for Indian stocks.
A few days after Indian Finance Minister P. Chidambaram returned over the weekend from a trip to the U.S. and Canada to woo investors, the government said Tuesday that it expects fewer dollars coming into Indian stocks this year.
C. Rangarajan, chairman of the Indian Prime Minister’s Economic Advisory Council told reporters on Tuesday that India expects foreign institutional investors to invest around $18 billion in the country for the financial year that started April 1. This would be 25% lower than their investments in the previous year that ended March 31.
Foreign institutional investors are a key driver of the Indian stock market.
Last year, overseas investors poured $24 billion into Indian stocks, sending the benchmark Sensex 26% higher and making Indian stocks one of the top five performers globally.
The Prime Minister’s Economic Advisory Council didn’t specify why it expects foreign inflows to cool, but we can make an educated guess.
India’s economy is growing at its slowest pace in nearly a decade – an expected 5% for the year through to March 31. The government hopes growth to accelerate to 6.4% for the year ending March 31, 2014.
Meanwhile, there is political uncertainty given the national elections which must happen before May 2014. This makes investors wary.
In addition, global investors have lately been finding better investment options elsewhere. Japan, for example, has become an investor favorite because a recent devaluation of its currency is expected to help boost the country’s export-driven economy, according to a Deutsche Bank report earlier this week.
India is aware that it has its task cut out even to meet its target of getting $18 billion from foreign stock investors. “Maintaining this level will be mostly dependent on domestic policy stance and growth conditions,” the Prime Minister’s Economic Council said in its report Tuesday.