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Parul Monga
Mumbai, July 19: FII investments in the country are expected to taper, according to managing director and chief investment officer of ITC Threadneedle Asset Management Company. "Even though there has been little or no selling during the Kargil conflict, the amount of FII investments that the country will see will be lower in the coming months", said Holdsworth, in an exclusive interview to The Financial Express.
The Indian market still has very few companies which are worth over $ 1 billion in size and many FIIs have a flat cut-off of not investing in companies worldwide with a size less than $ 1 billion, he said. ``Also, FIIs believe that there is no great feeling of excitement of investing in India as compared to Malaysia, Thailand, Japan (to an extent) where the companies are restructuring and change is evident", said Holdsworth.
Investors are coming in because they expect a stable government. There might be a pause before the elections and then FII investments might pick up again. Many IndiaDedicated Funds are likely to be set up.
But at the moment, FIIs are looking at domestic opportunities in terms of profit growth and a strong domestic economy. ``In India's case, FIIs are interested as they believe there is a strong growing domestic market. But when they look at the entire South East Asian region, they look for companies with good export growth."
" In India, a growing consumer base provides the excitement. But for the economy to grow, the government or the local government have to provide an environment where companies can grow efficiently, unshackled by the bureaucracy", said Holdsworth.
FIIs are not concerned about the volatility of the rupee when they invest in India as compared to investment in Thailand or Indonesia. In these countries, FIIs prefer buying companies which are into exports and would be more concerned about exchange rates. "Stability is seen as a positive factor for investment in India on the one side, but actually, investors do not invest in emerging markets forstability as there is no point. FIIs invest in emerging markets for growth and good returns but for stabillity, FIIs could invest in Switzerland or put money in bank. FIIs come here because they see terrific earnings growth,'' he said.
Although, many FIIs have taken more time to understand the country, they have found several large companies which are world-class in terms of domestic growth or the ability to export. The perception in the short-term is the outcome of the Kargil issue and the likelihood of a stable government.
``What has changed is a belief among foreign investors that, not only could the economy recover quicker than expected and therefore, the ideal capacity in some of the core industries would be put to good use, but also, look across companies that were valid, with a theme of restructuring clearly evident and it just so happens that this time the restructuring story aligns with many cyclically oriented companies. But the main story is restructuring and for the equity markets over thenext few years much beyond where we are now, we need to significantly improve corporate governance and business focus.''
He feels that the pension fund industry could play a role in developing the Indian markets. ``Although there is plenty of short-term liquidity, this is not long-term money and the speculators can pull it out any time, and they are not going to drive the index up in a sustainable way. This short-term money cannot sustain the rally and we need to have new assets coming in to take up the IPOs, allow companies to raise cash and to increase their value.
So, we look forward to the introduction of equity based private pension schemes which will be offered both at the institutional and retail level 401K type plans. We look forward to tax-breaks being given to personal contributions into these schemes as it is overseas and has proved to be very successful overseas,'' he added.
On the negatives, he does not see the ruppee weakening or strengthening significantly over the next six-nine months.``One danger could be that oil price might move significantly above $26 per barrel and stay there. The other is the possibility of the fiscal situation turning bad and the international credit rating agencies downgrading the country, raising the borrowing cost of the country as a whole, leading to potential outflows.''
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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